Quote:
Originally Posted by ADL Colin
Last night I took everything that I absolutely won't need for the next few years and loaded it into my investment account. Gonna make one last big buy. This will increase my account by 20%.
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That seems like an exceedingly bad idea
Looking at the current markets, it's extremely likely that you will lose 20-30% in the next few weeks. Those losses will take years to make up, and only after that will you begin to make a profit.
Quote:
Originally Posted by ADL Colin
Consider a large cap conservative company with a strong balance sheet selling at 6 times cash flow. There are quite a few right now. Assuming 8% average growth the next 10 years and 5% growth the next 10 that company is being sold at roughly 4x less than its value - using discounted cash flow and using a conservative long-term bond rate of 5%. It is likely that such a company will grow at 30% per year the next 10 years. These are values we haven't seen in the market since the 1970s. Assuming of course that we aren't entering a recession so deep that such companies will simply disappear.
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Consider that many companies still have hidden liabilities right now. It's likely that a few will still go bust no matter what happens. Ones that right now still look stable.
Even if you assume the markets will recover shortly, going into specific stock simply raises your risk exposure. By not choosing to go with a broad basket, you're betting both on a full recovery of the market in the relatively near future and on the future financial health of those specific companies.
Essentially, you're making two large bets at the same time. And that's not all.
You're making a third big bet in assuming that the near future isn't a deflationary one. Right now, that's a pretty big bet to make. Especially when combined with the other ones