Grouping investment themes together is a mental short cut many investors take. We have seen many examples of such groups, e.g. Asian tigers, emerging markets, frontier markets, mid-cap stocks, suburban real estate, condos, precious metals, infrastructure stocks, BRIC countries, ICE stocks, unicorns (start-ups), e-com start ups – the examples galore.
In the process, all the individual investments are considered to be equally safe. In search of opportunities, investors often forget that the risks could be vastly different. Almost invariably, they land up with the investment options that appear to be “safe” only because these belong to a certain group or a club.
The truth is discovered much later.
By the time the realisation happens, many have highly concentrated portfolios with poor liquidity and high leverage – a lethal combination.
#RidingTheRollerCoaster – 178