Collingwood – a team that inspires a range of opinions, but how do they relate to investing?
I could say the best investment any Collingwood supporter could make is not renewing their membership, but there are rules governing specific advice without knowing a person’s circumstances.
So we’ll get to the column!
Back in 2006 Collingwood added two pubs to the three existing pubs they already held. Both were trumpeted as great revenue streams where supporters could mix with the players.
You might understand Collingwood’s thinking; their existing establishments were already making a tidy profit – why not add to their burgeoning pub empire?
Well, concentrating more money into a narrow sphere of investment is always going to increase risk.
By 2008 those two new pubs weren’t performing so well and as fast as you could shout ‘fire sale’, new CEO, Gary Pert was looking to offload them.
Collingwood’s losses were around of $4.5 million dollars.
Collingwood already had three successful pubs, but they should have been looking for other opportunities – not increasing their exposure to one area.
Having all your eggs in one basket is known as concentration risk, and you’re highly susceptible to problems with a company or industry.
Take the BP oil spill in the Gulf of Mexico.
BP had always paid a healthy dividend that investors and fund managers heavily relied on – it was income each quarter and investors owned significant percentages of BP shares to receive the dividend.
Now that dividend has been suspended and investors are scrambling to find a replacement for income they expected.
Include BP’s share price – down more than 50% at its worst – and many investors learnt a lesson in concentration risk.
Shocks happen, profits are downgraded and revenues don’t materialise as expected. Expose yourself to too much of one area and your can money evaporate.
Learn a better way of investing – with the benefit of evidence.
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