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Tony Morgan introduces practical portfolio diversification by describing how four amigos have begun their investing journey, all in different ways, teasing out learnings from each

Personal Finance / opinion
Tony Morgan introduces practical portfolio diversification by describing how four amigos have begun their investing journey, all in different ways, teasing out learnings from each

Google Diversification. Go on do it.

Here we are not staying with any dogma or theoretical imperatives continually been dreamt up by academics and preachers of the subject as the piles upon piles of data accumulate to supposedly provide statistics, and in the end, some truth. Golliwogs.

No, not here. Sorry. Google is so much easier and better than any wondrous conclusions I can dream up.

However, on the path to understanding a bit about the concept of investment diversification, what we are going to do is gather real evidence from real portfolios as they are being managed and grown.

Yes, we are going to plunge into the real world of real people and their investment monies and what they are doing with it. Their decision making. Here in this first article (very long, but worth it as a blueprint for the articles on the subject that will follow).

Please be reminded before we proceed: Investment diversification is an endless and therefore infiniteness topic of discussion with globalisation and the financialisation of the world providing zillions of investments options and asset classes. New investments, i.e. ETFs, listed companies as new ideas poor into the world from material minds.

The battle ground of Lord Krishna as I see it ...

The Three Musketeers, plus one

Each Friday I zoom with two mates living in Germany.  We discuss our portfolios, performance, ideas and decisionmaking around individual investments, that is, are we holding, selling or looking to further diversification.

Friend one we will call the Shepherd.

Hey obviously, this is not his real name, but quite a good abbreviation for a young gentleman (35) building his flock of sheep (in this case investments).

He only starting investing around mid 2020, an initial flurry of 1000 shares in Vuzix (Canadian based AR glasses developer) at about US$3.20 one early summer afternoon while I was occupied cleaning a tennis court!

I had said something silly like VUZI (the ticker for Vuzix) might be worth a stab. Within an instant he had invested and low and behold end of the day the stock ended up about 20% from his purchase price.

The Shepherd thought he was a genius! I thought firstly, why hell I hadn’t done the same thing and then oh my god the guy is lucky…this may spell trouble? Anyhow the Shepherd, aka an up and coming future professor, fluent in about six languages, with an IQ of about 175 was off to a terrific start in investing in equities and hopefully building a nest egg long term, nurturing a flock as his long-term career was just edging towards reality. 

Please be reminded the Shepherd was living alone in a 40sqm flat, skimping and saving and thus had this ready cash do something with.

The second musketeer we will call duly the Silver Fox and Spark Plug (SF & SP interchangeably), an innocent paradigm of his brain workings, that material mind which switches between different modes of thinking depending on the situation and his ideas and ideals at the time. Some would say he is schizophrenic, but I didn’t say that … for all intents and purpose most of us have these dual qualities when questioned upon many of life’s challenges.

I came across Silver back in late 2019.  Actually, we were having a beer on a cold early winters night in the heart of the old East (Germany). We were yapping this and that (as guys do) and suddenly fell upon the subject of Elon Musk and his fledging Tesla operation.

SF had a packet of TSLA shares, oh what a scoop. However, he had previously had more (actually made up most of his initial foray into stocks) because he had liked Elon, actually worshipped the guy (still does by the way).

Silver had recently diversified into real estate, an old building in the middle of the capital of Slovakia and had to unload some TSLA to fund his side of the bargain (yes this do up was seen as a bargain and worth taking the enormous profit he had had on the majority of his TSLA investment).

Pre-split TSLA were trading for about US$300 (in today’s terms $60) and I guessed that on some 12 to 18 month time they could reach US$500 (pre-split), but heck they still looked fully priced. 

TSLA are currently trading for over $1000!!

Over our discussions last year and into 2021 I’ve come to find SP (mind the twist!) has kind of got two investment portfolios.

He has a core portfolio of Tesla, Facebook, Alibaba, Dropbox, Dell etc. and a plethora of various dabbling holdings of various sizes.  These latter investments, numbering I suspect about 20 or so, vary from week to week, are bought and sold as opportunities present themselves.  The Silver Fox likes listening and even paying for Podcasts that provide his mind (SP) with the latest ideas and investment tips. He has built up it seems a core group of supposedly gurus he listens too.

SFs total portfolio approximates probably a bit more than $500,000.

Oh, yes, Silver (greying as we converse) is 46, a middle career man, been 17 years with a big International tech company, has a young family (two girls 9 and 13) and lovely home-caring wife. Suffice to say he pulls in a good income thus has been able to build the equity portfolio as well as continue the relentless pursuit of residential real estate. He just likes that idea and the concept of the rent paying off the real estate debt outstanding over time with the goal to be debt free by retirement and collect those weekly payments for a utopian retirement somewhere on the shores of the Mediterranean!

Now back to the Shepherd. Over the last 16 months or so he has been adding to his investments since his cash flow keeps flowing, notwithstanding picking up a lovely young lady and moving to a larger 60 sqm apartment.

He has also been very fortunate to inherit some monies, which he dully added to funding his investment portfolio.

Actually, each week the Shepherd kind of runs our zoom session as he is pretty organized with some interesting charts for us to ponder, like the latest Index performances vs his portfolio, plus other longer term historical stocks, bond and commodity charts to get our Friday sessions off to a good start.

Initially I said to the Shepherd, maybe he aims for about seven stocks max as at that initial time early 2020 he had about €50,000 up his sleeve. One must remember that the Shepherd had been dithering for some time about investing and it was only upon my insistence that he give it a go that he actually did that initial VUZI plunge.  That first decision wasn’t easy. Far enough.

So, the way forward over the last year for the Shepherd has been rather interesting. He sold Vuzix rather quickly because he was up about 30% within a week and thus booked a profit a month or so later as he contemplated what to do. Vuzix at that time and still is, loss making, thus taking a profit mid the US$4 mark seemed sensible to him (and me I suppose) at the time, notwithstanding my initial recommendation that since he would not be needing any of this money for decades to come he really should just accumulate. The need for selling shouldn’t arise too often. How reality alters (and really investing) alters that theoretical ideology!

Staying conservative I said to the Shepherd pard that he should probably keep about 25% of his portfolio in cash or bonds as a safety net and also as liquidity if for some reason we entered again in a bear market to pick up really good opportunities.

Over 2020 into 2021 the Shepherd has added some small cap American and European semiconductor, medical and food stocks (companies all under US$500 mln capitalisation), plus a few bigger mid-caps (over US$1 bln).

Also to my dismay he had added some ETFs (exchange traded funds) where he thought he could not get an individual exposure that well or just didn’t want to buy individually because he just didn’t know what to buy (say out of my league, scope of ideas).

These ETFs included an emerging markets fund and a new energy fund to name just two.

The surprise in finding the Shepherd had invested in this ETFs was not because there was anything bad about it, but because our previous joint discussions had focused upon just buying individual stocks and doing the learning that goes with it that way. Bugger the guy, he’d overrun what I had assumed was the investment strategy! We had grown apart a bit. He had grown up!

Furthermore, the Shepherd was starting to look over his shoulder. Naturally he figured he could outperform market benchmarks because he had got off to such a flier! (mmm).

As he gathered more individual stocks, he read more quarterly, half yearly announcements and was more aware of news that might spark one of his stocks to move either up or down. His questions kept coming at me as well. 

That awareness though made him continue to be more observant of the volatility of investments and how the market values his positions. Lo and behold, over the last year the Shepherd has traded much more than initially intended. Also, diversification has increased with more moneys being invested, with his current portfolio equating to about $200,000.

And although the Shepherd had some amazing trades in 2020, his portfolio in 2021 has struggled somewhat. Currently he is almost fully invested as our last few zoom meetings have introduced a couple more investments he really took a liking to, one a small cap UK-based 5G testing equipment manufacturer and the other one of the biggest pharmaceutical companies in the world, Pfizer.

Now funny enough the Shepherd has become rather philosophical towards his fading 2021 investment returns in real terms. What underlines that more pragmatic, say somber assessment, is a charismatic belief in the learning process. He is learning that it isn’t all beers and skittles.

He also understands that his strategy is self-orientated to being riskier (than a Joe-Blow investor) in that he has many small caps in his portfolio, a few that are still to make real, profitable revenues. He likes this dabbling.

A part of his portfolio is almost in the realm of venture capital, but not quite. So, you can see I have to be a little careful what I say to this guy … sometimes he takes my word for gospel. I keep telling him the rules around stupidity (do not lose money needlessly, you have to be careful) and that this is still a learning game that we are all in it together.

Which brings us to our third Musketeer. Hey that’s me. At fifty-five I am the old guy in this team of boys. They think I know everything, but are finding out I cannot fool them forever. 

I say it is a game, because it is. It is a man-made venture, this investing stuff.  Might be a heck of theories and statistics of investment to guide us, but in the end, it is the decision-making process, whatever that is, that will carry you and your investment into the future.

Diversification is just one tool or shall we say concept that the raft boat of your returns swim upon.

Now my portfolio. Well I’ve ended up rather skewed to one stock. A long story, no time to discuss here. Very succinctly I did some in-depth research a few years ago, took a rather big position, and in the last year the company’s share price has multiplied as the fortunes of this particular company has bounded beyond belief.  This is one reason the other two Musketeers think I am so cool. I tell them again and again the realities…

  1. I am a bit lucky,
  2. I was lucky I didn’t need the money last year at the height of the Covid-19 pandemic, otherwise I might have sold (I certainly did not buy more at lows!),
  3. The company has been surviving for more than a decade, generally pronounced by many as a lost cause, a corpse of yesteryear (so it was cheap in hindsight),
  4. That is these years of lost hope the company still managed to spend millions on R&D in their chosen field and it is only now through a little luck, but mostly great leadership, perseverance, and superior product design, they are now prospering.

But on the other side my fellow Musketeers bellow that I have too much invested in NZ, such a minuscule market with such small companies.

I remind them that firstly our family's biggest investment is in a company that sells widgets into 70-plus countries globally, thus that particular investment can be termed global. 

The other seven or so NZ stocks are ones that I have researched or known about for many years, thus I feel more comfortable about putting monies to work there … for the better or worse.  Furthermore, I am dedicating more investments towards income generating, dividend paying companies as most of you will realise we in NZ benefit from imputed dividends.

Moreover, I rely on the potential for dividends more than my foreign friends, given my (I suppose) semi-retired status. Got to live somehow.

I also sit on a lump of cash, mainly for the day we possibly build another house, for that rainy day, but really (not for any substantial returns), but the ability to sleep at night.  That’s age for you!

Now the Other one (Stud)

My oldest son is 26. He fits into the scheme of things because he has no investments other than Kiwisaver and liabilities that span his days at University.

Stud has a great job, makes a heck more than I did at his age (well done), but, and this is a big 'but', spends a vast portion of his income on a lifestyle of experiences (good on you).

Stud and I have been discussing equities for quite some time now and he really does understand the ups and downs, as specifically he has witnessed our biggest investment being such a dog for what has seemed an eternity.

In his heart, I reckon he is grateful for the conversations we have had, kind of getting him ready for the day he gives up times with the boys, flying here and there to concerts, buying the latest golf driver and running after the girls as could be well expected. He is learning. He flats, has done so since he was 20.

What is really quite entertaining with Stud is that he has told his mates about investing. He has grabbed ideas from his Dad and laid them bare for all his close friends with money to see. He is witnessing the rise in wealth of others he is in contact with daily.

The Stud is a little fortunate. He knows he has inherited, along with his other siblings a piece of sub dividable land, thus he can comfort himself that he is already invested in real estate.

I keep reminding him about saving, he keeps telling me to keep up the good work! (implying you work Dad and Ill inherit, ha ha).

In fairness to the Other one, I didn’t really start saving myself till the late 20s, so I cannot give him a kick in the pants.  He is doing it his way. Time will nurture, we will see.

So, there it is, diversification (or not) over four portfolios.  This is a start to our conversation on the topic. I will follow in next few articles a somewhat deeper interpretation of these portfolio positions and how we can learn from reality to help you build and reflect upon your own (hopefully) somewhat sensible portfolio.

Tony Morgan has run a portfolio management business and an equity brokerage, both of which were purchased by Craig Investment Partners. He now runs a small family office that invests globally. Other articles in this series can be found here. And the profiles of all the NZX50 companies can be found here.

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It all boils down to one thing:

You buy if you think the price is going up, and you sell if you think it's going to fall.

Why you do that depends on what you see as an indicator of that happening. And in any market, no matter what it is, doing what you want is dependent upon someone else having another reason to do the opposite, to you.

PS: Survivor Bias tell us that we'll all get to read about the winners, not the losers!


An enjoyable entertaining read. I am somewhere between Silver Fox and third Musketeer and have a Stud (Grasshopper) of my own, whom I have similar conversations of wisdom with. To his credit, Grasshopper (Stud), while currently at University has a nice small portfolio of shares building up in his Sharesies account. Crazy I know a student at University paying his own way, with a little help, having a shares portfolio! He works part time and will be leaving his Hall of residence going flatting next year. He also has the benefit of plenty to fall back on thanks to Dads ongoing investments but he also knows he needs to make his own way in life first and foremost as I plan on being around a while yet!

Look forward to your next installment. 


I found that a hard read.  Seemed like a university paper padded out to reach a  certain number of words.  Also it would have been interesting to touch upon the Tax situation of NZ residents investing in overseas shares.  A wealth tax of 39% of 5% or around 2% (of your international assets) pa for investing in international assets for the bigger players.  A tax which seems quite unique for NZ.


I wonder if that company you speak of was Rakon?

I wish I was better at investing.  My pseudo anti-esg fund has done better than inflation but worse than the market so I'm under no illusions that I'm an amateur investor and not very good at it.  Still I have ~80k euro tied up in British American tobacco, Japan tobacco, Imperial brands, some energy companies beach energy, energy fuels, RWE AG, shell, some other future-ish stuff pointsbet, Nabriva, Dlocal, Tesla, Wise, Intel and a bunch of others.

I try to make a case for owning each one - If I'm honest I just try to guess the future earnings growth.  I like beaten down stocks with a low Buffet market capt to equity ratio.  I like dividend, I like insider buying, and I like it when hedge funds etc also buy the stock (the sheep approach).  I scratch around on the intenet looking for market research.  I usually type "whatever_company equity research filetype:pdf" in google to see what experts think.  And with all that half-assed research it still seems like a casino.

It's bothersome to me that the fed has decided to reduce it's purchase of treasuries and MBS between now and next August.  I don’t know what that will do to stocks but nothing good I guess.  More importantly, I wonder what the other players will think (game theory and whatnot).  Maybe I should just grab these upcoming dividends and call it quits for a year or two.