Monday, October 26, 2009

Picking low hanging fruits first

A fruit tree or a tomato plant will ripen at the bottom first before the fruits at the top starts to ripen later. If you waited till the fruit at the top ripened, the lower ones will be picked by others to be enjoyed now and you've missed out.

This is just like investing. If you wait and wait for the right moment to invest or the right thing to invest in, you'll have missed the low hanging fruit in the wait for the fruits up high. Other investors will have pounced on the opportunity while you dither over your decision.

Sometimes, the waiting game pays off. That is, the fruit ripens, is perfect, clean and beautiful. Sometimes, the waiting game is a loss because that fruit that you were waiting for... the birds and the worms got to it first, or the weather wasn't ideal and the fruit rotted and fell off.

What's the solution?

You pick that low hanging fruit. And then you pick the fruit up the top when it ripens.

That's an analogy for investing.

You invest in those blue chip stocks with your funds, and when you learn and save up additional funds for investing further, you can dabble your extra funds with investments that are pie-in-the-sky type if you desire. Or you can plonk some funds into exploration firms or small capitalised firms. Those deemed to be riskier prospects.

The low hanging fruit, that is, the blue chips such as Coca Cola, Caterpillar, the banks (CBA, WBC, NAB), the mining royalties (BHP, RIO) and the retailers (David Jones, Woolworths, Wesfarmers) are examples of low hanging fruit. They're already ripe for the picking. They will provide you with a meal via their juicy dividends year after year unless they collapse.

The high hanging fruit such as the small capitalised firms and the exploration firms... they may eventually one day, ripen and provide you with something tasty such as dividends and massive capital gains, or on the other hand, there is also the possibility that they could rot before they ripen, becoming as sour as a lemon and cause you to cringe about how you could be so gullible, so naive, so silly and so crazy as to buy into a sucker stock.

Those elusively high hanging fruits are just that...a gamble. Leaving you hoping that with the perfect weather, they will all ripen up successfully. It's akin to you hoping, that with the right economic and trading conditions, those small caps and those explorations stocks, will also deliver something worthwhile.

If you pursue those high hanging fruits, don't forget to cover your bases so that you won't ever starve - pick some of those low hanging fruits first. Then you can make your move, buy some promising stocks that may or may not deliver.


  1. Good discussions! And without taking on a large financial responsibility and burdensome mortgage, you can still receive high yields and build your investing experience before purchasing a larger property type. Once you have experience and funds, you can then move onto investing in larger homes or take on more ambitious projects such as converted hotels or display home purchases.

  2. Just noting that the merits of buying into converted hotels need to be analysed on individual basis...