"well unfortunately I do have to disagree with Meet Kevin who disagree with Kevin O'leary who disagree with Graham Stephan..." 🤣🤣😭😭 Said in the most professional way possible... I can't believe this actually makes sense...
Yeah, the interpretation of Meet Kevin's argument in the video is pretty generous. I'm pretty sure that he meant what he said. 1) I have a system by which I can take advantage of inefficiency in the real estate market, making better than market returns without outsized risk, and potentially less risk than other investments. Therefore 2) it makes sense to invest all the money in that system, only diversifying when my capital is too big for the opportunity, or otherwise so large I can no longer stomach the concentration of the risk in the sector where the system can identify opportunity. If you accept the first premise, I think the rest of the argument makes sense. And I think Meet Kevin does accept the premise, it is how he appears to attribute the bulk of the wealth he has made. This all of course relies on the belief that the real estate market is inefficient. Which is a pretty tough sell for me. And then he takes the same thinking and applies it to stocks, fuelled mostly by confirmation bias. And the hidden premise that the stock market is inefficient in a way that retail traders can take advantage of is effectively refuted by the existing evidence. That doesn't stop many people from trying their hand at day trading though.
@@tthansel day trading had its time in the past, now it is just gambling. I like your strategy/ system, when you have a system investing is like playing bridge, less risky, more fun. Investing is about growing value, and managing risk.
@@tthansel I spoke with Kevin before he got big on RUclips about this very thing. I can 100% confirm (1) is what he believes. He actually convinced me of this, and I now put the significant majority of my capital in RE. I believe the data in Jorda (et al.) strongly supports this view as well. I do not know why the single family RE market being inefficient is surprising. The majority of homebuyers are unsophisticated and irrational, there is low liquidity, the transaction costs are high, and the logistical realities of REI largely keep institutional investors out of the SFH space. More to the point, future rental yields from a house are observable in a way that stock performance is not. I do fully agree with your assessment of his view on stocks being fueled by confirmation bias. He could really do with a lot more humility when it comes to giving stock tips, but I don't see how you're supposed to be humble and have 900,000+ subscribers.
I learned more about risk and return from this video in 15 minutes than I did last semester in my finance class. thank you for always explaining things in tangible ways
Thanks to our growing list of Patreon Sponsors and Channel Members for supporting the channel. Michael Boensel, Robert Muller, Andre Michel, Ivan Ilaev, Gopaljee Atulya, Milan Tomic, Mark Hooker, Artem Vasenin, PH, Matthews Sebonego, Sebastian, Michal Lacko, Pratap, Deborah Joseph, Robin Sung, Kurt Johnston, Aman Bali, Lautaro Parada, Kaushik Vankadkar and Adrian Phang https:www.patreon.com/PatrickBoyleOnFinance
@Patrick Boyle now you have found the formula to getting views on RUclips, I’m just wondering how long we have to wait until you tell us how your own personal portfolio is broken down and is that something you would consider doing or not because of your professional career?
@@sppud0123456789 He talks about in a video how if you are notable on youtube this is really not something you can do legally. No matter what it looks like the RUclipsr is trying to move the price based on their influence. Since he still has professional interests outside of youtube, I am pretty sure Patrick Boyle is not interested in making that career risk and possibly getting in trouble with US regulators.
This is brilliant. For some reason, I never considered comparing a higher risk portfolio with a lower risk portfolio using more leverage. This has given me a lot to think about.
Mr. Boyle, I am a fan and I follow your videos. I appreciate all, but I appreciate the ones like this video more. I hope you produce more videos that have educational content like this more frequently. Thanks
Ah, while I appreciate the video, my video was taken out of context. Diversification IS important and it's something I agree with. However this video completely removed my arguments on controlling $100,000 in Real Estate with 3.5% down, buying below-market value real estate by learning value add, and controlling wealth as a step one to building wealth. Edit: Your explanation was great, by the way - I appreciate your channel and wish you the best success.
Thanks Kevin, I had a viewer who linked to your video (which I enjoyed watching), questioning diversification strategies for different age groups, I then enjoyed the idea of doing a response to a response to a response... There is a lot of nuance to diversification, as well as calculations of "risk" (backward-looking, historical, etc.), and certainly some important practical differences between institutional and retail access to asset classes and leverage.
I think what Meet Kevin was saying is an investor with say $10,000 doesnt have enough to worry about diversification or correlation matrices or asset classes. If they invest in the stock market they might make $500 or $1000/yr hardly life changing. At that point, a say 25 or 30 year old with $10,000 needs to maximize risk. Start or buy a business. Or buy highly leveraged real estate. If you buy a house with $10,000 down that appreciates $100,000 that's a 10x return. He's saying until you have enough money to really worry about your asset allocation, don't worry about your asset allocation and hussle and take risks until you do
The problem with diversification is that people think it is as easy as buying different stocks from different sectors but in reality as Patrick points out it is a lot more sophisticated and technical than that.
I think that Meet Kevin was also trying to make the argument for buying real estate. There is a confusion here because both Kevin and Graham built their wealth with real estate, with their first deals when real estate was very cheap. Real estate allows you to leverage your money massively, and they profited from it. This is why Kevin advances putting money in RE, without diversification. Though today it may not be a smart move, with sky-high prices. Diversification is one of the most critical concepts in finance. The goal is not to be lucky on one or even several deals to have a portfolio wiped out by one massive loss in the end! The goal is to stay in the game, and diversification is critical. Thanks for this great video Patrick!
@@bgwinn Exactly! And there is a little of survivorship bias also. Kevin did great with real estate, so for him, real estate is a sure winner, but he was lucky in his timing. People who bought real estate to invest in 2006/2007 did not get the same outcome. Real estate may still be a good investment in 2020, but it is far from obvious.
@@PaulSitarz Kevin is at least using some strategies that are going to work well regardless of market conditions: the so called BRRRR strategy. It was Graham that just rode the wave up and is not actually a savvy real estate investor.
Diversification is still important in real estate. However not in the same way at all. I wouldn't want my entire rental portfolio to be in a single small city.
26 yr old here. This is great content and and has taught me a lot. With YT and the web being filled with “the stock of the day”. I would love to hear your thoughts on how young investors such as myself can do their due diligence on companies before investing. Appreciate the content and probably only videos I have taken the millisecond to like. Cheers
As a financial advisor, I appreciate you walking through these concepts. This video reminded me of ways to explain these. Thank you very much for all you do and for how you do it.
😁😁This is the Finance channel we've all been waiting for, the host is a true professional who gives quantitative, logical and clear explanations that we can rely on to make investing decisions. Forget about those fake finance gurus who are in it fir the hype and selling fake investment algorithms
I agree that younger people should take on more risk, because they have the aspect of time on their side, whereas older individuals do not. You have more time to recuperate losses, if your investments turned sour. I do still believe that young individuals need to construct a plan that contains both logical and calculative measures before investing, no matter the degree of risk the stock carries.
Please don't ever stop making videos. These help tremendously............can you also talk about what true diversifications means? Many retail and beginner traders think diversification is buying ten different Tech or energy stocks. Instead of diversifying between different sectors.
Kevin is a complete novice with regards to stocks imo, hoping in the bandwagon with his fellow youtubers in this space who pull in huge add revenue from financial videos.
@@andrewtran331 his real estate advice is also a little shaky. Check tom from wake up and smell the real estate channel. Much better real estate advice
If you watched this video, you wouldn't leave a comment like this. Clearly this is where the hate stream goes; not actual watchers. ruclips.net/video/EIBfhK6n1CM/видео.html&ab_channel=MeetKevin
Well this got out of control, I suppose we can add vain, shocked I got a personal reply. Look this shouldn't be taken as hate or spam, your what 26 Kevin? Your young, experience takes time, not saying your not a great stock picker, or you haven't made tons if money. What I'm saying is your a novice, which if you've been in the market for under 5 years I think it's fair to say. Age breeds wisdom being young or novice is not a criticism, it's just a fact, your judgment of that is what I find interesting. And we know you make bank on youtube, otherwise you wouldn't be putting in the insane amount of time into it that you do; you get paid, that's fine, and that's ok bro, no worries, I think you should get paid too, and a lot, I'm sure you help out plenty of people. But I'm not going to call you a stock expert, your new, and well read as you said. The fact that this comment was found and replied to is just fascinating to me, says a lot about you. Meaning; bro, I'm not even worth your time, what are you doing here? Do you man.
Meet Kevin is doing extremely well and manages a whole lot of risk ! I started with almost no money and bought a rental house on a line of credit co signed by my Mom. I bought my house through an agreement for sale with the owner. Then had a min wage job with tips and sold cars out of the back yard. Bought more rentals and got my journeyman trade ticket. More rentals stopping at 10. I worked so hard over the years and later bought better properties and sold the shitty ones. I'm a millionaire now but 30 years later don't feel I'm much of a success. I was a single mom with a grade 8 education so I guess I should be grateful . Thanks !
This topic reminds me of the long-standing question: Which is better youth/strength or age/wisdom? In that if a person were a good trader (wisdom), then wouldn't a few of those high probability trades beat out a widely diversified shotgun approach (large diverse portfolio). Secondly, I think there is a difference between investing (and trading). Where if someone holds a diversified investment portfolio for years. History shows the stock market goes up, given enough time. Versus trading, where a person is agile and follows the price action in just a couple of markets.
Depending on the strategy, a shotgun approach isn’t necessarily a bad idea. This is because your confidence bands for expected returns can overlap significantly. If you could make one trade, or ten trades with similar expectations (within each others’ confidence bands), I’d go with option 2 to smooth out returns (even if the overall expected value is a bit less).
All your calculations made perfect sense to me, you learn such things in the first weeks of a physics bachelors. The question is, however, how you arrived at the base numbers. Correlation can be simply calculated from charts of two stocks, but nothing indicates that a low correlation in times of low market movements would also hold in times of large market events. The same goes for standard deviation, a market is not a repeatable measurement from which mean and std can be calculated. Every year, every decade, the market conditions are different. The base assumptions that have to be made to use mean, std and correlation are not given. I think if I keep on typing I‘ll write an essay why economics is not science, so I better stop now. Thanks for the great video!
I love your channel, please keep giving us your take on this crazy world we live in, I feel like I understand it slightly better than before I watched your video
This is a great explanation of diversification from the perspective of modern portfolio theory. But as a value investor, I would much rather put a lot of money into one investment when I see a great opportunity. If I buy one company per year, that's 10 great companies in 10 years. I want my portfolio to become diversified over time, rather than forcing diversification from the beginning just for the sake of it.
Honestly those guys are just sharing their opinion, and their opinion is no more valuable than any other finance 'guru' on RUclips. Kevin O'Leary has proven time and time again that he doesn't know what he is doing when it comes to stock market investing except maybe the very basics. Same goes for Graham, I don't know meet Kevin very much but I hear he is more of the same. Clearly they are very successful so they are good at something, work very hard, and/or were very lucky. Graham and maybe Kevin O'Leary seems to be good at real estate, for example. TL;DR I would not place much weight on their opinions. Their job is to talk about SOMETHING to create content. Stick to Buffett, Munger, Greenblat, Lynch, and the other investors with years of verifiable success to learn from. My opinion.
Thank you Patrick, I found your channel from Coffeezilla and Tom Nash and I've realized some gains from recent hot stocks and have no idea how to manage this much money. Your videos are giving me the tools to properly manage my portfolio to my soon to be fat nest egg.
I don't have a diverse portfolio because it is difficult for me to identify more than 3-4 really good opportunities at any given time. Also much more practical for me to track a smaller number of investments while I am working. I prefer to bet big on a few things that I am extremely confident on, hedge appropriately, and watch as closely as possible while working my 9-5.
If you’re a retail investor, just buy an index fund, then scale your risk/return by either investing a smaller percentage of your portfolio for less risk/return, or borrowing money to buy more of an index fund for higher risk/return
Thank you for your fantastic free education! I would also agree to invest in riskier assets when you are young, besides economic and financial literacy, is necessary for your future net-worth, financial decisions and hopefully independency! The obvious reason is, that you have enough time to recover if your assumptions were wrong.
11:41 In terms of your insurance example, having correlated assets is like insuring every person in a town with flood insurance. Each home has a probability of there being a flood. However if one home is flooded, it is likely that other homes around them also get caught in the same flood. If a flood destroys the whole town all the insurance policies pay out at the same time and the diversity benefit doesn't work.
Kevin talks about investments the way your average retail investor does. When listening to him speak, especially if you have any kind of traditional asset management training, you have to keep that in mind. When Kevin is talking about investment real estate, he is talking about a very active approach. One that requires skill and sweat equity. He is essentially talking about building a real estate business. He diversifies his business, by diversifying services offered. He sells real estate as an agent, buys real estate, and either rents or flips. This is different than portfolio income. That being said, Kevin has only ever done business in a bull market. I'm curious to see how he does during a bear market.
I appreciate that this is the economic dogma, but it ignores a couple of factors - In real life risk and return are completely different axes. Within any class, some investments are better than others. An active investor can research the underlying drivers of risk and return to pick out the better options. - Diversification reduces your ability to focus and understand any one area to the point where you can pick the winners. So if you're a passive investor and not trying to pick winners, diversification works. But ETFs, REITs and bonds in various markets. If you're trying to be an active investor and outperform the market, know your circle of competence and focus on what you know.
CDO's for example did what you said, spread risk. However they failed because split in were bad loans. It's about taking risks in companies you think will do well. Not just buying trash because it diversifies.
when you know what you are doing: diversify, when you don't know what you are doing: don't do it. i think many people misunderstood when Mr Buffett saying you should concentrate your investment, he meant to concentrate in the best of the best in different sectors, not in one stock. while in reality, you can put all you have in one stock, even you have a 20/20 foresight, you may not tolerate the volitality, end up panicking buying/selling.
Buffett analyses his prospective investments in a lot of detail. He argues that if you do that, you don't need to diversify. He says if you DON'T know what you're doing you should diversify instead. Let's be honest, almost all of us don't know what we're doing.
@@tomevans9451 i agree. diversification is about risk management while doesn’t hinder potential return. I would say Buffett do diversify his stocks in tech (aapl) and cyclical(bac) , one is going to ride out a recession, another is going to ride the economy rebound wave.
Love your work Patrick.Please let me know if I have this right. I look at my favourite stocks that I would like to go all in with.Calculate the maximum returns of given stocks over given time.Write this down. Then create a diversified non-correlated portfolio using my best possible using these stocks and others. Then wind the margin up.
Great video Patrick! Does it make sense, though, to leverage bonds within a diversified portfolio? It would increase bond volatility, leading to higher expected returns, but this could also just be accomplished using unleveraged equities without the risk of margin calls, etc.
Wonderful content. For anyone with access to fee free trading don't see any strong argument not to diversify regardless of level of investment. Lost $7k on GME getting to the circus late and not managing risk, but with diversified portfolio still up over $14k last 5 weeks. Diversification and risk management should be top priorities for any investor.
Its hard to know where we are. My grandparents had one person working (grandfather) and the other as homemaker. Retirement at 65 was financed through a pension. My parents both had to work. Retirement funded through two pensions and moving savings to bonds. Retirement today seems to require two substantial retirement accounts and keeping everything in stocks, since bonds wont provide the return needed to live another 20 years past retirement. My kids have massive school loan debts (equal to a mortgage). No idea how they are going to retire, if ever...
I’m surprised there are so many negative opinions on the Meet Kevin video here. Especially about the diversity aspect within investments. When you’re beginning your investment career, i agree with Kevin and it seems silly to me that anyone would diversify. It is impossible to learn all there is in any field of investment as a novice. There is just way to much to learn. I invest in real estate (single family houses) and stocks (individual growth stocks) and would never dip my toes into areas I had no idea about, even if it could be called “diversification.” For example, I would never invest in multi family apartments until I understood that business, as i know it is way different than single family houses. I won’t even invest in single family houses outside the zip codes I know because it’s that different from one city to the next. Right now in regards to stocks, I have spent the last few months looking into dividend stocks and still don’t feel I grasp them well enough to do more than practice paper trading them on a platform like Webull. I know enough about growth stocks to realize that you can’t value them the same as you do Dividend stocks. Just slapping your money into an index without understanding what it is doing is gambling imo. Looking at numbers on a spreadsheet doesn’t protect you. And the truly wealthy got that way because they specialize and continue to educate themselves. To me that’s the message I got from Meet Kevin. Once you learn, you expand to take more opportunities. You can’t do calculus before you learn algebra though. Least that has worked for me so far.
The work I did in 2003 (using a global bank's VaR engine) suggested that the optimal number of stocks in a portfolio was about 12. I have never had a problem with putting all my eggs in one basket (or a very view baskets). The trick was to watch the basket very closely. Thanks for the great videos.
One question about standard deviation in relation to expected return. Should I consider the standard deviation of the expected price an investment the risk of my position? Or should I calculate my risk using standard deviation of the expected price in relation to the price I brought the stock at? I mean if it's a bell curve, the risk of my position is the part of the bell curve where the price is bellow the price I bought the stock at. And the area of that surface of the graph divided by the surface of the graph should be the likelihood of a loss on that trade. But you see, half of the standard deviation of the expected price of the stock is when the stock will perform better than expected. Idk, I didn't traded stocks that much, only options, but it seams that by diversifying you not only reduce risk, you also reduce the chance of your investment doing better than expected, which if your prediction about the price is correct ( that's what trading cames to) and you bought at a lower price ( aka your not an idiot) the 'risk' of your investment doing better than expected is higher than losing money, so it doesn't make sense to diversify if you want to primarily build up your account and are willing to take risk, and you should only do if you want to protect your portfolio by hedging risk.
Thanks for your video Patrick. Very clear speaking, good content. Perhaps you could talk a little on macroeconomics and trapping vol in the FX markets please!
It seems to me that while a young investor might have more risk tolerance, every lost dollar, either through loss or weak returns, will be missing for a longer period of compounding gains.
If you stick with the safest investments, the compounding rate is going to be smaller and your money won't grow nearly as fast. Your initial investment in series ee treasury binds will take about 12 years to double while the same investment in an s&p etf will likely double in around 7. The spread between how much money you make on the completely safe investment and the more risky one will diverge exponentially the longer you're invested. When the amounts of money you're investing are small enough that you can cover losses just by working extra extra hours or picking up an odd job and you have a long time for the law of averages to do its work, a riskier mix can help you build compounding power faster.
with 10k over 40 years given modest returns you can be in a very healthy financial position when you retire. why you invest is important to your investing strategy. I think it's east to get caught up in wanting to make millions from stocks but it's often unrealistic for most given a short time frame. better to get guaranteed returns rather than gambling
Hi Patric! Love your content and the quantitative approach you take to investing. I came across a paper called "Efficient Markets Hypothesis: A False Prophecy. Black-Scholes-Merton Formula: A Parlor Trick. Risk-Neutral Pricing Models: Severe Malpractices." by Truc LE. The claims made in this paper are quite controversial to say the least and I personally don't have enough knowledge to debunk them. Maybe you could do a video discussing the possible flaws in the models we use to determine probabilities? I remember you touching this topic in the volatility smile video and would love to hear more!
This is the kind of finance RUclips channel that I was looking for. Thank you for sharing this piece of information. Could you please explain industries that are highly and lowly correlated and how to build defensive portfolios for downturn states of the economy? BTW I also just subscribed to the channel.
I’ll play Kevin’s advocate here using a couple bullet points: •Real Estate offers better leverage and borrowing costs compared to equities if you do not have access to portfolio margin. Efficient frontiers and sharpe ratios are cool, but normal people can’t borrow near a risk free rate. •You can write off mortgage interest payments on your taxes. •Heloc’s are more accessible than margin loans, and you can borrow against a higher % of your equity in a home than in your portfolio. •Real estate can be a strong value-added product if you are willing to fix up a property. Can’t really fix up a company without a massive war chest. •Broad market exposure includes exposure to debt ridden zombies who are propped up by already being in the index. 60/40 works fine, but I don’t think I’ll miss much if I avoid GE or XOM. I prefer equities and derivatives, but I just wanted to provide an alternative view.
I heard a big invester (a buddy of Buffet...the other old guy, I forgot his name) who calls it deworsefication because he is against it. His argument is that you should know a lot of the companies you invest in and you can only know so much about a few companies. He actually invested billions in only 3 stocks. I havent checked whether these go against each other like gold (goes up during crisis) and banks (going down during crisis).
I think by diversification they talk about treasury bonds. That indeed makes little sense to me when the net worth is very low, as there isn't that much to protect, while the potential upside you're missing on can make a difference in the long term. Of course, you should always diversify and never invest in a couple of stocks, for example. I don't know how anyone could be against that.
Just found you and I’m super glad I did. There is a depth of content to your videos that you just don’t find on other channels. Have you considered adding graphics in to assist in both explaining to and engaging with the viewers during the video?
You didn't even get into rebalancing the portfolio. If you have uncorrelated returns, after some amount of a random walk, some will likely be higher than they "should" be, others will be lower. On average, by rebalancing, you will be selling (or buying less of) assets that are higher than they "should" be, and buying (more of) ones that are lower. By doing this with a good number of slices of the market, you can beat the "average return" of your portfolio at any point in time by having tended to buy when things were priced lower overall. I personally think that's the real key to generating greater risk-adjusted returns when using the tools available to retail investors. It may not be huge and almost all the benefits can be obtained by rebalancing far less frequently than I do, but I always like trying to eke out every small advantage I can. However, I disagree that every investor always prefers lower risk for a given return. There may be investors out there who would prefer to invest in riskier assets with the same average return because they are more of a gambler. These are the people that would rather go big or go home. And for most investments with a huge upside, we're generally talking private equity in startup growth companies, and the unknown nature of the possible returns makes it impossible to suggest what an "expected" return might be, so at that point there's no calculations involved in determining whether to invest; it's only based on your tolerance for the investment to become worthless and the likelihood they might get at least something out of it.
but also thats the reasoning banks used to make CDOs with house loan bonds to reduce their risk in paper before the subprime crisis. Well I guess it didnt work because those were not really uncorrelated.
"well unfortunately I do have to disagree with Meet Kevin who disagree with Kevin O'leary who disagree with Graham Stephan..."
🤣🤣😭😭 Said in the most professional way possible...
I can't believe this actually makes sense...
Pythonesque. 😂
It's the one point everyone disagrees on.
Wow! Deep, clear, useful, and concise and he isn’t selling you anything!!!
This is a fine example of financial education!
I agree this is financial education ..... but he did mention His book, soo he is selling something
Once Meet Kevin said "Invest where you KNOW you will make money" I laughed.
he meant tesla... like so many others on youtube
Yeah, the interpretation of Meet Kevin's argument in the video is pretty generous. I'm pretty sure that he meant what he said.
1) I have a system by which I can take advantage of inefficiency in the real estate market, making better than market returns without outsized risk, and potentially less risk than other investments.
Therefore 2) it makes sense to invest all the money in that system, only diversifying when my capital is too big for the opportunity, or otherwise so large I can no longer stomach the concentration of the risk in the sector where the system can identify opportunity.
If you accept the first premise, I think the rest of the argument makes sense. And I think Meet Kevin does accept the premise, it is how he appears to attribute the bulk of the wealth he has made.
This all of course relies on the belief that the real estate market is inefficient. Which is a pretty tough sell for me.
And then he takes the same thinking and applies it to stocks, fuelled mostly by confirmation bias. And the hidden premise that the stock market is inefficient in a way that retail traders can take advantage of is effectively refuted by the existing evidence. That doesn't stop many people from trying their hand at day trading though.
@@tthansel day trading had its time in the past, now it is just gambling. I like your strategy/ system, when you have a system investing is like playing bridge, less risky, more fun. Investing is about growing value, and managing risk.
yeah I've never liked his videos, dont think he gives good advice
@@tthansel I spoke with Kevin before he got big on RUclips about this very thing. I can 100% confirm (1) is what he believes. He actually convinced me of this, and I now put the significant majority of my capital in RE. I believe the data in Jorda (et al.) strongly supports this view as well.
I do not know why the single family RE market being inefficient is surprising. The majority of homebuyers are unsophisticated and irrational, there is low liquidity, the transaction costs are high, and the logistical realities of REI largely keep institutional investors out of the SFH space. More to the point, future rental yields from a house are observable in a way that stock performance is not.
I do fully agree with your assessment of his view on stocks being fueled by confirmation bias. He could really do with a lot more humility when it comes to giving stock tips, but I don't see how you're supposed to be humble and have 900,000+ subscribers.
I was looking for a postgraduate course at Queen Mary university, and I just found him as one of the teachers! I’ll 100% apply for that course
Wow Queen Marry in Mile End? Is Patrick London based?
wow lucky!
@@ekaterinastaneva9922 he is, pls don't ask for delivery they only do takeouts.
I learned more about risk and return from this video in 15 minutes than I did last semester in my finance class. thank you for always explaining things in tangible ways
Thanks to our growing list of Patreon Sponsors and Channel Members for supporting the channel. Michael Boensel, Robert Muller, Andre Michel, Ivan Ilaev, Gopaljee Atulya, Milan Tomic, Mark Hooker, Artem Vasenin, PH, Matthews Sebonego, Sebastian, Michal Lacko, Pratap, Deborah Joseph, Robin Sung, Kurt Johnston, Aman Bali, Lautaro Parada, Kaushik Vankadkar and Adrian Phang https:www.patreon.com/PatrickBoyleOnFinance
@Patrick Boyle now you have found the formula to getting views on RUclips, I’m just wondering how long we have to wait until you tell us how your own personal portfolio is broken down and is that something you would consider doing or not because of your professional career?
@@sppud0123456789 He talks about in a video how if you are notable on youtube this is really not something you can do legally. No matter what it looks like the RUclipsr is trying to move the price based on their influence. Since he still has professional interests outside of youtube, I am pretty sure Patrick Boyle is not interested in making that career risk and possibly getting in trouble with US regulators.
Glad to see your subscriber numbers picking up, your knowledge is superior to most RUclipsrs, it's about time you start getting recognised.
This is brilliant. For some reason, I never considered comparing a higher risk portfolio with a lower risk portfolio using more leverage. This has given me a lot to think about.
This is what financial education should look like: clear, precise, a good mix between real life sccenario and the theory of things.
Mr. Boyle,
I am a fan and I follow your videos. I appreciate all, but I appreciate the ones like this video more. I hope you produce more videos that have educational content like this more frequently.
Thanks
Ah, while I appreciate the video, my video was taken out of context. Diversification IS important and it's something I agree with. However this video completely removed my arguments on controlling $100,000 in Real Estate with 3.5% down, buying below-market value real estate by learning value add, and controlling wealth as a step one to building wealth. Edit: Your explanation was great, by the way - I appreciate your channel and wish you the best success.
You are everywhere on youtube Kevin 😂 There is no hiding from you lol
Hi Kevin! Love your channel :)
Thanks Kevin, I had a viewer who linked to your video (which I enjoyed watching), questioning diversification strategies for different age groups, I then enjoyed the idea of doing a response to a response to a response... There is a lot of nuance to diversification, as well as calculations of "risk" (backward-looking, historical, etc.), and certainly some important practical differences between institutional and retail access to asset classes and leverage.
I think what Meet Kevin was saying is an investor with say $10,000 doesnt have enough to worry about diversification or correlation matrices or asset classes. If they invest in the stock market they might make $500 or $1000/yr hardly life changing. At that point, a say 25 or 30 year old with $10,000 needs to maximize risk. Start or buy a business. Or buy highly leveraged real estate. If you buy a house with $10,000 down that appreciates $100,000 that's a 10x return. He's saying until you have enough money to really worry about your asset allocation, don't worry about your asset allocation and hussle and take risks until you do
lol Meet Kevin sweating bullets
I am studying level one CFA, and it teach the same with what you explained.
Thank you for this vidio
I think Kevin meant to say was "YOLO 20x leverage into real estate. Re-leverage to taste. Prices always go up and tenants always pay."
And there are never any maintenance costs or upkeep.
How to become insolvent when the real estate market crashes every ~13 years.
That guy such a charlatan
Just his accent alone tells you that he knows nothing.
This explanation should serve as the difference between fact and opinion. Well done, Patrick.
The problem with diversification is that people think it is as easy as buying different stocks from different sectors but in reality as Patrick points out it is a lot more sophisticated and technical than that.
S&P500 is a no brainer well diversified portfolio. I would never construct my own portfolio.
I was procrastinating from doing my finance homework and I stumble we are going over correlation. This was perfect.
You are the number one teacher in the internet. Please do not change.
Thank you for making time to educate people.
Guven
No bamboozle or fairy tales with you (unlike the other... 'actors' mentionned). Clear, scientific and simple. Thank You.
I think that Meet Kevin was also trying to make the argument for buying real estate. There is a confusion here because both Kevin and Graham built their wealth with real estate, with their first deals when real estate was very cheap. Real estate allows you to leverage your money massively, and they profited from it. This is why Kevin advances putting money in RE, without diversification. Though today it may not be a smart move, with sky-high prices. Diversification is one of the most critical concepts in finance. The goal is not to be lucky on one or even several deals to have a portfolio wiped out by one massive loss in the end! The goal is to stay in the game, and diversification is critical. Thanks for this great video Patrick!
Thanks Paul.
Spot on. Some look at it through the lens of their own life experiences - as humans have a tendency to do.
@@bgwinn Exactly! And there is a little of survivorship bias also. Kevin did great with real estate, so for him, real estate is a sure winner, but he was lucky in his timing. People who bought real estate to invest in 2006/2007 did not get the same outcome. Real estate may still be a good investment in 2020, but it is far from obvious.
@@PaulSitarz Kevin is at least using some strategies that are going to work well regardless of market conditions: the so called BRRRR strategy. It was Graham that just rode the wave up and is not actually a savvy real estate investor.
Diversification is still important in real estate. However not in the same way at all. I wouldn't want my entire rental portfolio to be in a single small city.
this is GOLD... how I love videos of smart guys... thank you so much Patrick... you are a legend!
Glad to hear you invested into a better microphone/sound setup.
26 yr old here. This is great content and and has taught me a lot. With YT and the web being filled with “the stock of the day”. I would love to hear your thoughts on how young investors such as myself can do their due diligence on companies before investing. Appreciate the content and probably only videos I have taken the millisecond to like. Cheers
Thanks!
Thank you!
I like how you mix classical finance principles in real life situations, very good explanation.
As a financial advisor, I appreciate you walking through these concepts. This video reminded me of ways to explain these. Thank you very much for all you do and for how you do it.
Patrick you are a great communicator and able to bring clarity to difficult concepts. In other words you're a great teacher.
Starting to look like the Four Yorkshiremen :) . Absolutely brilliant response to the response on the response to the opinion about diversification!
Hey y’all. Binge watch his channel and take notes. This guy is very good!
Wow! I didn't know about standard deviation in evaluating stock, correlation, and the minimum number of stock to hold. Thanks for the info.
😁😁This is the Finance channel we've all been waiting for, the host is a true professional who gives quantitative, logical and clear explanations that we can rely on to make investing decisions. Forget about those fake finance gurus who are in it fir the hype and selling fake investment algorithms
Subscribed! Came over from Coffeezilla..... Very interesing and educational................
I agree that younger people should take on more risk, because they have the aspect of time on their side, whereas older individuals do not. You have more time to recuperate losses, if your investments turned sour. I do still believe that young individuals need to construct a plan that contains both logical and calculative measures before investing, no matter the degree of risk the stock carries.
Please don't ever stop making videos. These help tremendously............can you also talk about what true diversifications means? Many retail and beginner traders think diversification is buying ten different Tech or energy stocks. Instead of diversifying between different sectors.
Kevin is a complete novice with regards to stocks imo, hoping in the bandwagon with his fellow youtubers in this space who pull in huge add revenue from financial videos.
completely agree, never liked his videos. Graham Stephan and Patrick are so much better imo
Dude was advocating for Dave and busters lol
@@andrewtran331 his real estate advice is also a little shaky. Check tom from wake up and smell the real estate channel. Much better real estate advice
If you watched this video, you wouldn't leave a comment like this. Clearly this is where the hate stream goes; not actual watchers. ruclips.net/video/EIBfhK6n1CM/видео.html&ab_channel=MeetKevin
Well this got out of control, I suppose we can add vain, shocked I got a personal reply.
Look this shouldn't be taken as hate or spam, your what 26 Kevin? Your young, experience takes time, not saying your not a great stock picker, or you haven't made tons if money. What I'm saying is your a novice, which if you've been in the market for under 5 years I think it's fair to say. Age breeds wisdom being young or novice is not a criticism, it's just a fact, your judgment of that is what I find interesting.
And we know you make bank on youtube, otherwise you wouldn't be putting in the insane amount of time into it that you do; you get paid, that's fine, and that's ok bro, no worries, I think you should get paid too, and a lot, I'm sure you help out plenty of people.
But I'm not going to call you a stock expert, your new, and well read as you said.
The fact that this comment was found and replied to is just fascinating to me, says a lot about you.
Meaning; bro, I'm not even worth your time, what are you doing here? Do you man.
Meet Kevin is doing extremely well and manages a whole lot of risk ! I started with almost no money and bought a rental house on a line of credit co signed by my Mom. I bought my house through an agreement for sale with the owner. Then had a min wage job with tips and sold cars out of the back yard. Bought more rentals and got my journeyman trade ticket. More rentals stopping at 10. I worked so hard over the years and later bought better properties and sold the shitty ones. I'm a millionaire now but 30 years later don't feel I'm much of a success. I was a single mom with a grade 8 education so I guess I should be grateful . Thanks !
You.are.spam.
This topic reminds me of the long-standing question: Which is better youth/strength or age/wisdom? In that if a person were a good trader (wisdom), then wouldn't a few of those high probability trades beat out a widely diversified shotgun approach (large diverse portfolio).
Secondly, I think there is a difference between investing (and trading). Where if someone holds a diversified investment portfolio for years. History shows the stock market goes up, given enough time. Versus trading, where a person is agile and follows the price action in just a couple of markets.
Depending on the strategy, a shotgun approach isn’t necessarily a bad idea. This is because your confidence bands for expected returns can overlap significantly. If you could make one trade, or ten trades with similar expectations (within each others’ confidence bands), I’d go with option 2 to smooth out returns (even if the overall expected value is a bit less).
All your calculations made perfect sense to me, you learn such things in the first weeks of a physics bachelors. The question is, however, how you arrived at the base numbers. Correlation can be simply calculated from charts of two stocks, but nothing indicates that a low correlation in times of low market movements would also hold in times of large market events. The same goes for standard deviation, a market is not a repeatable measurement from which mean and std can be calculated. Every year, every decade, the market conditions are different. The base assumptions that have to be made to use mean, std and correlation are not given.
I think if I keep on typing I‘ll write an essay why economics is not science, so I better stop now. Thanks for the great video!
This might be the only channel on RUclips with cohesion between the videos of the channel. Great stuff.
i should remember to start commenting on every video i watch. your knowledge deserve to be spread.
I love your channel, please keep giving us your take on this crazy world we live in, I feel like I understand it slightly better than before I watched your video
I do hope we do see someone responding to this aswell
Thank you Mr. Boyle your education is priceless to me. Technology is amazing.
Outstanding content Sr. Thanks for sharing your knowledge!
Awesome video! It's nice to see your channel start getting traction. Btw i've been reading some of your books they are great.
This is a great explanation of diversification from the perspective of modern portfolio theory. But as a value investor, I would much rather put a lot of money into one investment when I see a great opportunity. If I buy one company per year, that's 10 great companies in 10 years. I want my portfolio to become diversified over time, rather than forcing diversification from the beginning just for the sake of it.
Honestly those guys are just sharing their opinion, and their opinion is no more valuable than any other finance 'guru' on RUclips. Kevin O'Leary has proven time and time again that he doesn't know what he is doing when it comes to stock market investing except maybe the very basics. Same goes for Graham, I don't know meet Kevin very much but I hear he is more of the same. Clearly they are very successful so they are good at something, work very hard, and/or were very lucky. Graham and maybe Kevin O'Leary seems to be good at real estate, for example.
TL;DR I would not place much weight on their opinions. Their job is to talk about SOMETHING to create content. Stick to Buffett, Munger, Greenblat, Lynch, and the other investors with years of verifiable success to learn from. My opinion.
Thank you Patrick, I found your channel from Coffeezilla and Tom Nash and I've realized some gains from recent hot stocks and have no idea how to manage this much money. Your videos are giving me the tools to properly manage my portfolio to my soon to be fat nest egg.
I don't have a diverse portfolio because it is difficult for me to identify more than 3-4 really good opportunities at any given time. Also much more practical for me to track a smaller number of investments while I am working. I prefer to bet big on a few things that I am extremely confident on, hedge appropriately, and watch as closely as possible while working my 9-5.
May I introduce you to the concept of an index fund/ETF? Sounds quite optimal for your scenario where you don't want to invest time and hedge risks
If you’re a retail investor, just buy an index fund, then scale your risk/return by either investing a smaller percentage of your portfolio for less risk/return, or borrowing money to buy more of an index fund for higher risk/return
Thank you for your fantastic free education! I would also agree to invest in riskier assets when you are young, besides economic and financial literacy, is necessary for your future net-worth, financial decisions and hopefully independency! The obvious reason is, that you have enough time to recover if your assumptions were wrong.
this is a must see video for any new investor
And there it is. If I had seen this two years ago it would have saved me $500 and a Meet Kevin subscription.
Good video, good statistics, thanks for this reaction to a reaction to a reaction video.
Thank you Patrick, amazing explanation!
Concise, lucid explanation grounded in fact cuts through hand-wavey bullshit every time. Way to go, Patrick.
Can we get another RUclipsr to add their response to your response to that guy's response to XYZ haha - love it. 😂
11:41 In terms of your insurance example, having correlated assets is like insuring every person in a town with flood insurance. Each home has a probability of there being a flood. However if one home is flooded, it is likely that other homes around them also get caught in the same flood. If a flood destroys the whole town all the insurance policies pay out at the same time and the diversity benefit doesn't work.
Kevin talks about investments the way your average retail investor does. When listening to him speak, especially if you have any kind of traditional asset management training, you have to keep that in mind.
When Kevin is talking about investment real estate, he is talking about a very active approach. One that requires skill and sweat equity. He is essentially talking about building a real estate business.
He diversifies his business, by diversifying services offered. He sells real estate as an agent, buys real estate, and either rents or flips.
This is different than portfolio income.
That being said, Kevin has only ever done business in a bull market. I'm curious to see how he does during a bear market.
Absolutely amazing videos explaining complex matters simply and with grace. Thank you , I am a fan !
I appreciate that this is the economic dogma, but it ignores a couple of factors
- In real life risk and return are completely different axes. Within any class, some investments are better than others. An active investor can research the underlying drivers of risk and return to pick out the better options.
- Diversification reduces your ability to focus and understand any one area to the point where you can pick the winners.
So if you're a passive investor and not trying to pick winners, diversification works. But ETFs, REITs and bonds in various markets.
If you're trying to be an active investor and outperform the market, know your circle of competence and focus on what you know.
I can't thank you enough for content you're producing! It is so informative
Now we gotta send this video to Meet Kevin and see if he is going to make a response to the response of a response...
He already responded to one of the comments, so he is watching lol. Hopefully he learns too and stops giving such awful advice...
I like what you do. You explain things in a way that I understand. You cut through bullshit very efficiently.
ALWAYS very interresting thank you so much MC
Intersting meta-reaction video! Looking forward to see Patrick get involved in some RUclips break up drama between vloggers!
CDO's for example did what you said, spread risk. However they failed because split in were bad loans.
It's about taking risks in companies you think will do well. Not just buying trash because it diversifies.
always dressing fresh
I like these kind of videos, where things are explained in maths and statistics, instead of general financial advices, thanks and keep it up
when you know what you are doing: diversify, when you don't know what you are doing: don't do it. i think many people misunderstood when Mr Buffett saying you should concentrate your investment, he meant to concentrate in the best of the best in different sectors, not in one stock. while in reality, you can put all you have in one stock, even you have a 20/20 foresight, you may not tolerate the volitality, end up panicking buying/selling.
Buffett analyses his prospective investments in a lot of detail. He argues that if you do that, you don't need to diversify. He says if you DON'T know what you're doing you should diversify instead. Let's be honest, almost all of us don't know what we're doing.
@@tomevans9451 i agree. diversification is about risk management while doesn’t hinder potential return. I would say Buffett do diversify his stocks in tech (aapl) and cyclical(bac) , one is going to ride out a recession, another is going to ride the economy rebound wave.
Love your work Patrick.Please let me know if I have this right. I look at my favourite stocks that I would like to go all in with.Calculate the maximum returns of given stocks over given time.Write this down. Then create a diversified non-correlated portfolio using my best possible using these stocks and others. Then wind the margin up.
Great video Patrick! Does it make sense, though, to leverage bonds within a diversified portfolio? It would increase bond volatility, leading to higher expected returns, but this could also just be accomplished using unleveraged equities without the risk of margin calls, etc.
Wonderful content. For anyone with access to fee free trading don't see any strong argument not to diversify regardless of level of investment. Lost $7k on GME getting to the circus late and not managing risk, but with diversified portfolio still up over $14k last 5 weeks. Diversification and risk management should be top priorities for any investor.
Its hard to know where we are. My grandparents had one person working (grandfather) and the other as homemaker. Retirement at 65 was financed through a pension. My parents both had to work. Retirement funded through two pensions and moving savings to bonds. Retirement today seems to require two substantial retirement accounts and keeping everything in stocks, since bonds wont provide the return needed to live another 20 years past retirement. My kids have massive school loan debts (equal to a mortgage). No idea how they are going to retire, if ever...
thanks again Patrick for a terrific video
I’m surprised there are so many negative opinions on the Meet Kevin video here. Especially about the diversity aspect within investments.
When you’re beginning your investment career, i agree with Kevin and it seems silly to me that anyone would diversify. It is impossible to learn all there is in any field of investment as a novice. There is just way to much to learn.
I invest in real estate (single family houses) and stocks (individual growth stocks) and would never dip my toes into areas I had no idea about, even if it could be called “diversification.”
For example, I would never invest in multi family apartments until I understood that business, as i know it is way different than single family houses. I won’t even invest in single family houses outside the zip codes I know because it’s that different from one city to the next.
Right now in regards to stocks, I have spent the last few months looking into dividend stocks and still don’t feel I grasp them well enough to do more than practice paper trading them on a platform like Webull. I know enough about growth stocks to realize that you can’t value them the same as you do Dividend stocks.
Just slapping your money into an index without understanding what it is doing is gambling imo. Looking at numbers on a spreadsheet doesn’t protect you. And the truly wealthy got that way because they specialize and continue to educate themselves. To me that’s the message I got from Meet Kevin.
Once you learn, you expand to take more opportunities. You can’t do calculus before you learn algebra though.
Least that has worked for me so far.
The work I did in 2003 (using a global bank's VaR engine) suggested that the optimal number of stocks in a portfolio was about 12. I have never had a problem with putting all my eggs in one basket (or a very view baskets). The trick was to watch the basket very closely.
Thanks for the great videos.
One question about standard deviation in relation to expected return. Should I consider the standard deviation of the expected price an investment the risk of my position? Or should I calculate my risk using standard deviation of the expected price in relation to the price I brought the stock at? I mean if it's a bell curve, the risk of my position is the part of the bell curve where the price is bellow the price I bought the stock at. And the area of that surface of the graph divided by the surface of the graph should be the likelihood of a loss on that trade. But you see, half of the standard deviation of the expected price of the stock is when the stock will perform better than expected. Idk, I didn't traded stocks that much, only options, but it seams that by diversifying you not only reduce risk, you also reduce the chance of your investment doing better than expected, which if your prediction about the price is correct ( that's what trading cames to) and you bought at a lower price ( aka your not an idiot) the 'risk' of your investment doing better than expected is higher than losing money, so it doesn't make sense to diversify if you want to primarily build up your account and are willing to take risk, and you should only do if you want to protect your portfolio by hedging risk.
Great video Patrick :)
Thanks for your video Patrick. Very clear speaking, good content. Perhaps you could talk a little on macroeconomics and trapping vol in the FX markets please!
It seems to me that while a young investor might have more risk tolerance, every lost dollar, either through loss or weak returns, will be missing for a longer period of compounding gains.
If you stick with the safest investments, the compounding rate is going to be smaller and your money won't grow nearly as fast. Your initial investment in series ee treasury binds will take about 12 years to double while the same investment in an s&p etf will likely double in around 7. The spread between how much money you make on the completely safe investment and the more risky one will diverge exponentially the longer you're invested. When the amounts of money you're investing are small enough that you can cover losses just by working extra extra hours or picking up an odd job and you have a long time for the law of averages to do its work, a riskier mix can help you build compounding power faster.
with 10k over 40 years given modest returns you can be in a very healthy financial position when you retire. why you invest is important to your investing strategy. I think it's east to get caught up in wanting to make millions from stocks but it's often unrealistic for most given a short time frame. better to get guaranteed returns rather than gambling
Hi Patric!
Love your content and the quantitative approach you take to investing.
I came across a paper called "Efficient Markets Hypothesis: A False Prophecy. Black-Scholes-Merton Formula: A Parlor Trick. Risk-Neutral Pricing Models: Severe Malpractices." by Truc LE.
The claims made in this paper are quite controversial to say the least and I personally don't have enough knowledge to debunk them. Maybe you could do a video discussing the possible flaws in the models we use to determine probabilities? I remember you touching this topic in the volatility smile video and would love to hear more!
I really enjoy your intelligent sense of humor.
Fantastic video on the best finance channel! Wish I had seen this years ago.
Great explanation ...thanks
This is the kind of finance RUclips channel that I was looking for. Thank you for sharing this piece of information. Could you please explain industries that are highly and lowly correlated and how to build defensive portfolios for downturn states of the economy? BTW I also just subscribed to the channel.
Okay okay, you convinced me I'll buy the book! Holy smokes what a solid explanation. Thanks!
Are you the "STONKS" character guy?
I’ll play Kevin’s advocate here using a couple bullet points:
•Real Estate offers better leverage and borrowing costs compared to equities if you do not have access to portfolio margin. Efficient frontiers and sharpe ratios are cool, but normal people can’t borrow near a risk free rate.
•You can write off mortgage interest payments on your taxes.
•Heloc’s are more accessible than margin loans, and you can borrow against a higher % of your equity in a home than in your portfolio.
•Real estate can be a strong value-added product if you are willing to fix up a property. Can’t really fix up a company without a massive war chest.
•Broad market exposure includes exposure to debt ridden zombies who are propped up by already being in the index. 60/40 works fine, but I don’t think I’ll miss much if I avoid GE or XOM.
I prefer equities and derivatives, but I just wanted to provide an alternative view.
There are much worse companies than Exxon, but I do agree the GE is a turd.
Thanks Jonathan
Ah man, why is this channel so hard to find on RUclips? Makes me wonder how many other gems are out there.
I should do a response to this video! :)
It is the only reasonable thing to do.
I heard a big invester (a buddy of Buffet...the other old guy, I forgot his name) who calls it deworsefication because he is against it.
His argument is that you should know a lot of the companies you invest in and you can only know so much about a few companies.
He actually invested billions in only 3 stocks.
I havent checked whether these go against each other like gold (goes up during crisis) and banks (going down during crisis).
I think by diversification they talk about treasury bonds. That indeed makes little sense to me when the net worth is very low, as there isn't that much to protect, while the potential upside you're missing on can make a difference in the long term. Of course, you should always diversify and never invest in a couple of stocks, for example. I don't know how anyone could be against that.
I agree on the correlation analysis but the point that it is not accounted is that the correlation might drastically change upon certain events.
Just found you and I’m super glad I did. There is a depth of content to your videos that you just don’t find on other channels.
Have you considered adding graphics in to assist in both explaining to and engaging with the viewers during the video?
How can I expand the STD formula for more stock than two, generate multiple cov? Or are you comparing two stocks at each time in a portfolio?
13:04 *gold*
this bit of info is gold
You didn't even get into rebalancing the portfolio. If you have uncorrelated returns, after some amount of a random walk, some will likely be higher than they "should" be, others will be lower. On average, by rebalancing, you will be selling (or buying less of) assets that are higher than they "should" be, and buying (more of) ones that are lower. By doing this with a good number of slices of the market, you can beat the "average return" of your portfolio at any point in time by having tended to buy when things were priced lower overall. I personally think that's the real key to generating greater risk-adjusted returns when using the tools available to retail investors. It may not be huge and almost all the benefits can be obtained by rebalancing far less frequently than I do, but I always like trying to eke out every small advantage I can.
However, I disagree that every investor always prefers lower risk for a given return. There may be investors out there who would prefer to invest in riskier assets with the same average return because they are more of a gambler. These are the people that would rather go big or go home. And for most investments with a huge upside, we're generally talking private equity in startup growth companies, and the unknown nature of the possible returns makes it impossible to suggest what an "expected" return might be, so at that point there's no calculations involved in determining whether to invest; it's only based on your tolerance for the investment to become worthless and the likelihood they might get at least something out of it.
but also thats the reasoning banks used to make CDOs with house loan bonds to reduce their risk in paper before the subprime crisis. Well I guess it didnt work because those were not really uncorrelated.
Incredible information. Thanks for all the great content
Awesome insight, and reaction. Is agree with your conclusion about meetkevin's video.