Diversification good or bad?

Discussion in 'Risk Management' started by oraclewizard77, Jan 22, 2009.

Diversification is the holy grail.

Poll closed Feb 1, 2009.
  1. Stay Diversified

    8 vote(s)
    72.7%
  2. Concentrate your portfolio in just a few stocks.

    2 vote(s)
    18.2%
  3. Stay with Cramer

    1 vote(s)
    9.1%
  4. Way too many polls here on ET

    0 vote(s)
    0.0%
  1. Undoubtedly, diversification is good as it enables risk reduction and allows portfolio re-diversification once financial goals change over a period of time but sometimes it also add complexity to the investment process. If you have money $ 20000, then it is better to invest that money into one investment rather investing in to 10 companies which requires diligence.
     
    #81     Aug 14, 2019
  2. Gaston

    Gaston

    I think even diversification can lose money over time.
     
    #82     Oct 31, 2019
  3. bulls95

    bulls95

    Diversification is undoubtedly good. It allows you to spread risks among various assets and you can even set off losses from profits on other assets in your portfolio. Investment in just one stocks makes you subject to a lot of risk. Imagine what happens if the company shuts down.
     
    #83     Nov 1, 2019
  4. rider20

    rider20

    Yaa right! Another thing to note is that many people confuse diversification with over diversification. Hence apart from your goals, risk potential etc you should also know till what extent you should diversify.
     
    #84     Nov 5, 2019
  5. deaddog

    deaddog

    With equities what is the ideal diversification.
     
    #85     Nov 5, 2019
  6. Louis_tr

    Louis_tr

    Can you please detail your view a little?
     
    #86     Nov 13, 2019
  7. Diversifying your portfolio is probably the best way to reduce the potential risk so that your losses can be adjusted with the profit that you gained in another way.
     
    #87     Nov 14, 2019
  8. Diversification doesn’t always protect you from risks. The key to success is to do it smart.
     
    #88     Nov 15, 2019
  9. Much diversification bashing.

    I am in the process of diversifying as I am managing several accounts

    I am looking at 50 equities positions across all accounts

    Here is my reasoning.

    1. I have a profitable edge
    2. Opportunites to execute my edge are plentiful
    3. I do not know which positions will be profitable
    4. My system is semi-automated so easy to manage
    5. When people talk about how Mr XYZ has done well being concentrated, it is not mentioned that Mr XYZ is a survivor (maybe 1 in 100) and there are many multiples of these traders who did not survive and therefore we don't hear about.
    6. My comissions are negligible
    7. Divserfication allow one to move into the market slowly. This allows one to 'test the water' for good trading conditions without risking too much capital to find out.
    8. Diversification can smooth out an equity curve
    9. A smoothed equity curve allows one to keep to the strategy
    10. A smoothed equity curve assists with compounding returns

    The success of diversification is dependent on the above but seems to help reduce the gambling element to trading.

    Diversification is no good to those without a profitable system.
     
    Last edited: Dec 30, 2019
    #89     Dec 30, 2019
  10. deaddog

    deaddog

    How much time is required to manage your portfolio?
     
    #90     Dec 30, 2019