Forget about diversification

Discussion in 'Strategy Building' started by 220volt, Dec 19, 2006.

  1. due to globalization of markets, etc. it is true to some extent that various international markets are more highly correlated than they once were.

    this is not a slag against diversifcation. this is exactly the opposite. it says that just because you are invested internationally does not MEAN you are diversified

    i have over 40% of my IRA in gold, oil, soy, aluminum, wheat, some "junk bonds", etc.

    that's diversification

    merely investing internationally does not = diversification

    diversification also means not just investing in one TYPE of stock, but having some value stocks, some cyclicals, etc.
    #11     Dec 19, 2006
  2. 220volt


    I have my 401k for retirement and account with tradeking for investing/trading.

    I also think that international markets are more and more corelated and owning just one or two funds would get you as diversify as it gets (stock wise).

    I agree that you need to hold some of the inverted funds to maybe hedge your portfolio (gold and real estate for example) but at the right time. Not at the same time where your porfolio is making great returns. Why cushion the profits.
    I mean there are lot of signals and warnings before big crashes and if you do your homework i think holding just one or two ETF's could be very profitable.

    I do own Stock Almanac and Stock Traders Almanac.
    Right now my only Europian ETF is doing much better then any of the Stock Almanac's portfolio's.
    I will get out of the trade when that fund starts going down using seasonal techniques combined with macd and some other technicals. Just like they're doing at stock almanac. Once i exit that ETF i will get in Real Estate, Gold or whatever is opposite of owning stocks, until that ETF get on the up trend again.

    That's my 0.02c
    #12     Dec 19, 2006
  3. 220, i generally agree

    i also note that i am not invested in gold, oil, corn, etc. etc. just to hedge - although it is nice that they show little if any positive correlation with equities

    i am invested in them in order to speculate, hedge, and seek capital appreciation

    generally, the longer term my investment (vs. trade) the more likely i am to buy weakness and sell strength.

    that's why i bot gold in 1998 when nobody talked about it, everybody hated it, and all people could talk about was stocks

    diversification is significantly improved by investing in some stuff that is not flavor of the month
    #13     Dec 19, 2006
  4. i was going thru some old posts here and there is a thread where a guy was talking about getting into coffee in 2004

    man, that must have turned out nice
    #14     Dec 19, 2006
  5. BenChi


    here is a quote from market wizards:

    'if you invest and don't diversify, you're literally throwing out money. people don't realize that diversification is beneficial even if it reduces your return. why? because it reduces your risk even more. therefore, if you diversify and then use margin to increase your leverage to a risk level equivalent to that of a non diversified position, your return will probably be greater.'

    #15     Dec 19, 2006
  6. that's an excellent point, ben

    spread trading is also an excellent way to diversify exposures, reduce risk, etc.

    there is a reason why a corn calendar spread, or a futures calendar spread requires FAR less margin than an outright position. hint, hint, hint
    #16     Dec 19, 2006