WEBVTT 00:02.690 --> 00:08.180 Did you know that people who invested 100 dollar in the General Electric or sought to use stock at the 00:08.180 --> 00:15.180 beginning of 2015 lost the approximately 70 dollars until the end of 2000 and 18. 00:15.200 --> 00:26.110 So that's a four year period from 2015 to 2000 and 18 and a initial investment of 100 dollars declined 00:26.260 --> 00:31.190 to 30 dollars in the recent past. 00:31.190 --> 00:37.700 The GS stock has been one of the most underperforming stocks in the US and even if the overall market 00:37.730 --> 00:43.400 in the most recent years was good the GS stock underperformed so they probably failed to follow the 00:43.400 --> 00:50.150 best business opportunities and the opposite holds true for somebody who invested in the six year period 00:50.150 --> 00:53.870 from 2010 to 2015. 00:53.870 --> 01:02.310 So this investor increased his investment from one hundred dollars to two hundred and six dollars you 01:02.310 --> 01:10.400 can see with this great visualization how risky and volatile it is to invest into a single stocks that's 01:10.490 --> 01:17.180 the same graph for the S&P 500 index which is a broadly diversified index containing 500 large U.S. 01:17.180 --> 01:24.950 stocks and at a first glance there's much less volatility and there are still some red areas where investors 01:25.010 --> 01:29.860 lose money but these are red areas are related to a market crisis. 01:29.870 --> 01:38.180 So for example the dot com bubble in the early 2000s or the financial crisis in 2000 and a 2009. 01:38.360 --> 01:44.570 And that's the diversification effect of investing into many stocks and securities so you can reduce 01:44.570 --> 01:50.000 the risk by holding a diversified portfolio instead of investing into a single stocks. 01:50.000 --> 01:56.290 And there's a second diversification effect these so-called time diversification effect. 01:56.420 --> 02:03.350 And as we increase the investment period the volatility of results and the likelihood that we lose money 02:03.350 --> 02:08.940 decreases in contrast shorter periods of one or two years are pretty risky. 02:08.950 --> 02:14.350 So if your investment horizon is only one or two years then stocks might not be the best investment 02:14.350 --> 02:14.860 at least. 02:14.860 --> 02:22.330 You should decrease the portion of stocks in your portfolio and that's actually the two most fundamental 02:22.330 --> 02:28.600 rules in investing holding a diversified portfolio and choosing the right portfolio for your specific 02:28.600 --> 02:30.310 investment horizon. 02:30.520 --> 02:36.850 And those two routes that I explained in two minutes make 80 or 85 percent of your investment success. 02:36.850 --> 02:41.710 And for the remaining 15 percent I would require another 30 hours. 02:41.870 --> 02:44.050 That's two years and the S&P 500. 02:44.050 --> 02:51.090 Side by side and the two you stock is actually part of the S&P 500 but only with a very small rate. 02:51.220 --> 02:57.910 So the company's specific risk that we can see here is completely diversified or diminished in the S&P 02:57.910 --> 03:05.110 500 and by the way you will learn how to create those great and informative graphs here with only a 03:05.110 --> 03:07.600 few lines of python and pen US Code.