Mus uni non fidit antro
A mouse does not rely on just one hole. (Plautus). It diversifies.
To diversify, bought Bank Poalim and other things. Paradoxically, the thingies I am selling are performing the best. Something is wrong with the concept of diversification but I cannot put my finger on it. It doesnt work for me.
8 comments:
Diversification reduces risk but it also reduces return in some cases. Say you own one stock and the market is 20% randomly volatile on average (putting aside long term trend [hopefully] upward. Each year your portfolio may swing up or down 20%. If you own ten stocks, 5 will go up and 5 will go down, netting out to zero (plus the market return). This will seem bad compared to the 1 stock portfolio in an up year for the 1 stock.
K
Unlike K, I tend to read popular financial books that seem to do me little good. Almost five years ago I read one of Robert Kiyosaki's books and he said that if you truly know what you are doing in a given field investment risk is close to zero. RK contrasted this with diversifying as a means of hedging risk, a method that involves knowing little about a many fields and investing in them all.
RK even compared having a broker urge a customer to diversify to having a used car dealer urge a customer to diversify. A used car dealer would love it if a customer came in and bought ten cars in the fear that one might fail when he needed it to run. RK stated that the better strategy is to own one good car and take care of it.
There are different strategies which can be compared to reproductive strategies in insects vs. humans - the insect produces thousands of offspring with low investment in each egg laid. Even if 90% of the offspring do not survive , it is still a successful strategy. Human puts a big investment in (nowadays) 1 or 2 offspring. It's not clear which is better - both humans and insects are successful species.
Going to the used car analogy, which would be more likely to start on a cold morning - one $30,000 car or ten $3,000 cars? I'd say that 10 $3,000 cars would STILL win. Eventually that $30,000 car, even if well maintained, will have a dead battery, but at least ONE of the 10 clunkers in your driveway will start.
K
K, you are talking about the r-K strategy (no pun intended).
Anon.
Being quite K-selected, he can keep all those ideas straight without bothering with the names.
r-selection is favored in unstable or unpredictable environments. I'd say we are living in an unstable financial environment so one should have an r-selected investment strategy.
K
r selection investment strategy?
Investment dont reproduce. Or they do?
In an investment you expect to get back more $ than you put in. Isn't that a form of reproduction? And on the other side, animals are said to "invest" biological resources in strategies for passing their genes on.
K
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