On 13 Nov'11, I had posted some advice on how to take advantage of floods in Thailand. In hindsight, the financial advice seems quite average.
The advice:
"...Invest in the ratio 1:4 favoured towards Seagate’s shares till the flood water recedes. Then, after Western Digital accesses its damages rethink your portfolio. Most probably, the damage would be substantial so invest in the ratio 1:3 after Western Digital’s stock hits rock bottom. Finally, take out money from Seagate and invest in Seagate & Western digital in equal proportions when Seagate’s stock prices double or so from the current levels..."
Turns out:
If you had followed my advice your $100 would be worth $201 on 24 Aug'12, i.e., 101% ascent in your portfolio within a span of around 9 months! However, if you had just distributed your funds equally among both Western Digital & Seagate and slept with peace, you would have woken up to a portfolio double the initial size ($196 for $100 invested 9 months ago) of your fund.
This is the reason every financial analyst shouts about the powerful sword of arithmetic mean. It averages out every bull and bear run in its way. During the nine months under consideration, Seagate jumped 103% while Western Digital rose 72%.
The takeaway from this analysis is even if you weren't suave enough to undertake the portfolio juggling or didn't have analytical skills to predict an outperforming future of Seagate against Western Digital, a 50%-50% weighted portfolio would have enabled you to double your corpus in just 9 months.
Yours
A.G.
Courtesy: Google Finance
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