Appendix 3: Let's plan our next holidays!: Saturday, 18 February 2017: (05:31)

Today is the first sunny day of February and I’m denying to talk about anything else apart from vacations. Soooo... somehow I have to correlate diversified portfolios with my future holidays for this spring and summer. As an investor and a traveller, what I have for sure is the price I am going to pay. These prices constantly fluctuate on daily basis or even more frequently. The reason? Because they are dependent on the demand. The more popular the destination or share is, the higher the price will be. They also depend on the company’s demand for cash. If a company needs cash immediately, the company reduces the prices to attract more investors/travellers.

I aim to buy the share with the highest return and for the destination with the most beautiful beaches. However, what I do not know is if I’m taking the most privileged decision. How will I know the specific share will provide me the most promising (by companies) high return? Most importantly, how will I assess if the visiting place is as exotic and fun as it is described by the agencies?

Let’s see what a diversified portfolio is and what it could teach us for our next holidays.

Markowitz’s portfolio theory described it as “the ability of investors to diversify away unsystematic risk by holding portfolios consisting of a number of different shares”. Portfolio theory is a modern way to eliminate the risk taken on investments, unsystematic risk, since beliefs of past trends and collective wisdom have been debunked. After 2008 economic crisis, investments are funded under lots of consideration.

Investing on two  expensive, cheap and particularly international projects simultaneously, which are independent (zero correlation) from each other is considered a more secure investment portfolio. It is very important the portfolio to be “lazy” otherwise the shares will lose their added value. It is also essential to invest in different markets, as independent shares’ result is not affected by companies’ events, but are directly affected by market events.

How do I decide where to invest my money though? It is definitely not an easy decision. It would be helpful,  each investor to develop an “efficient frontier” representing a combination of efficient portfolios, which are expected to maximise the return for a given standard deviation.

The collective wisdom is to invest on “unicorn” companies, start-up companies valued at more than a billion dollars, like Snap Inc. Snap Inc negative financial performance has a positive attractiveness to investors probably because is the only one currently selling its shares. This investment has two drawbacks though, first too many investors with who I have to share  the returns! But I don't like sharing! Second, I don't think the returns will be high at all, works better for me to invest to a less expensive project promising lower returns. But I will (probably) stick to it expecting high returns in long term.

Projects, which are cheap and are expected to have a low return ultimately, are the ones, which issue the highest performances. When a company claims low dividends and share prices, the upward trend for them is inevitable. The keys are diversity, being constantly updated and time. Especially the last element, perfect timing (or luck) makes a huge difference. Ideally, the investor has to buy when the price is low and sell when the price is high.

Now let’s imply all this finance theory for our own “leisure benefit”. Let’s say I want to have the best holiday without spending all my money. It is reasonable to start checking prices now, perfect timing, especially morning times when holiday packages tend to be cheaper. If I'm not satisfied with the prices given for the most popular places, where all our friends are going, I could try something different this time. Instead of spending all of my money to one popular place, which might not be as fun as I expected. I could use these money for three completely different, but cheaper places, diversity.  Be careful and check the reviews first!!!! being updated. 

The concept is about gaining experiences; one place is the least possible to provide me with more experiences than what other three places will do.

The reason I keep saying three places is because even if I love travelling, at some point it becomes very tiring and I do not want these beautiful destinations to lose their value.

Investing and travelling are poles apart. From the first, one is expected to “earn” money and from the latter, one is about to “waste” money, but the similarity between their procedures is surprising!!