How my Dad’s old school “Investment Diversification Strategy” helped grow our group of companies
I lost my dad 25 years ago.
I loved my dad. A phenomenal businessman and an even more awesome father.
Here’s is an interesting story that I thought I’d share.
This past year has been a roller coaster for all things that pertain to the stock market. It’s hard to imagine that a year after the Covid pandemic shut down the economy, stocks have gained 80% from the lows and the market is in a solid position to continue to rally. It’s now being led by sectors that had been very unlikely leaders — .
May 13th 2021 marked a very special anniversary for our family. It’s hard to imagine that 25 years ago Erik and I lost our father and less than a year after our loving mother. As I reflect back on the early years of my teenage years I still remember the Sundays where my dad sat at the kitchen table analyzing the stock market with his newspaper, with my brother by his side colouring his book while mom was cooking up a storm. He manually highlighted the winners and losers and attempted to give me a few crash courses on his old school “investing diversification strategy”.
To be completely honest, I really didn’t understand anything about how the stock market worked when I was a teenager but dad still had me sit down and look closely at which specific stock pic made him a profit and compared them to the ones who didn’t. He went on the elaborate on the financials and completely loss me from that point on. Nonetheless, one key specific word and tagline stuck with me.
He was a strong believer in investing small”er” amounts in multiple blue-chips and dabble in just a select few riski”er” stocks to help spice things up. It was all about balance and yes DIVERSIFICATION investment tactics so I thought at the time.
He consistently mentioned that the most important thing in investing and in business is this… “Don’t put all your eggs in one basket”. I recall him saying this over and over like a hundred times. Even today, it’s still a popular saying and is still the core idea behind the investment diversification strategy: As they say, you don’t want to lose most of your eggs if your basket tips over.
When it comes to any rock solid business diversification strategy, diversification might seem a little more complicated than investing in multiple blue chips to spread the risk but the idea is the same.
How diversification works for investments can and should be applied to every business strategy
In the stock market world, diversification generally refers to buying a variety of stocks, so that your portfolio doesn’t depend exclusively on the performance of just one. The easiest way to visually illustrate how and why diversification is important is to see it in action.
Let’s look at a an example using only one stock: Let’s say your portfolio is just a mountain of stocks in hotel and hospitality with 80% of your portfolio in AirBNB stock, and the other 20% in other hotel brands. This is fine if the rental industry is doing well and on a tear, but if there’s a negative event like the one we just lived through and drops the price of hotel and hospitality stocks by 50% then the value of your entire portfolio would drop by 50%. Same can be said for your business portfolio. It’s very important to have skin in the game in multiple sectors ei. real estate… residential and commercial, vendor programs with as many insurers\non insurers, stocks in multiple sectors etc.
Not diversifying can put you at risk, however if your portfolio / book of business is more diversified, this fall in value could be reduced exponentially. A well-diversified portfolio absorbs losses, in other words, the more you diversify, the less reliant you are on a single company, sector, vendor or industry.
Over the last twenty five years, if I learned one thing from father’s investment strategy it’s this
To reach your full potential you must grow and take calculated risks. And to grow, you must be highly intentional and disciplined about it. That’s how resilience is built over time — Raymond Frigon CR
I know it’s cliché but in business and in life there’s a saying… NO RISK, NO REWARD. I’d eben add 3 key words Calculated’, Intentional’ and Disciplines in there.
“No… calculated, intentional & disciplined… Risk, No Reward”