INDEXES VS. STOCKS

Quite often I am asked why I prefer index buying instead of single stocks. I do believe I have some reasonable answer for that and here below I am gonna summarize my approaches.

1.       Hard to collect the relevant information

You are aware that I am so bullish on the stock market. But honestly I never buy any single stocks just indexes. Cause I don’t like the luck in the trading and investing. In the single stock trading I see many risk, namely I don’t have enough relevant information about that certain company. Is there any crazy guy in the board, is there any risk behind the curtain, is there any risk on the management ... etc. On one single stocks I cannot see the risks well, but on the indexes I just need to open FT or WSJ and read the relevant information in 20 minutes about DJIA or DAX. You will not find a simpler solution to diversify and reduce the risk with indexes. Honestly I don’t need to know anything about the single companies at SP500, what I only need to have is a general view about the direction of the market.

2.       Volatility

The volatility is much bigger on single stocks than on indexes. You can make a fortune on 3D printing companies this year over 100-200% profit. I am happy if you did that. Or if you bought Tesla or Starbucks you have made over 50% in this current year. But never forget this is an optimal scenario, but sometimes will come the worst case scenario when you can lose 50% easily on some single stocks. Just remember for Apple, Enron, Arthur Andersen, Nortel ... etc. On stocks the volatility is much bigger than on indexes that is the reason why I am buying only index. I can’t do 100-200% per year, but honestly I don’t really want to do that because it is too risky. The flip side is that I cannot afford to lose 50% neither. If you are super lucky, never forget will come the super unlucky days too. That is the behaviour of this business.

3.       Which indexes we trade?

We only forcusing on the flagship indexes and don’t care about the small composites. We trade DJIA, SP500, Nasdaq, FTSE, DAX, CAC40, Nikkei, Hang Seng. There is no sense to trade belgian or greek markets because all the markets are correlated so sooner or later the arbitrage is disappearing.

Those are my biggest reason why I am trading indexes against the stocks. But I have a piece of good news there is one huge common thing. The market is so bullish. So bear in mind and buy the dips.

Take a look at our Swiss fund and begin to invest with us!

The BFM Assets Team.