Ray Dalio vs Warren Buffet on Diversification. Who is right?

Discussion in 'Risk Management' started by lovethetrade, Aug 13, 2019.

  1. Ray Dalio vs Warren Buffet on Diversification. Who is right?

    One of my most overarching principles is “knowing how to deal well with what you don’t know is much more important than anything you know.”

    Related to this is my fundamental investment principle that “diversifying well is the most important thing you need to do in order to invest well.”

    This is true because 1) in the markets, that which is unknown is much greater than that which can be known (relative to what is already discounted in the markets), and 2) diversification can improve your expected return-to-risk ratio by more than anything else you can do

    https://seekingalpha.com/article/4285059-diversifying-well-important-thing-need-order-invest-well

    “Diversification is a protection against ignorance," according to Buffett. "It makes very little sense for those who know what they’re doing.”

    https://www.forbes.com/sites/karlka...-great-investors-dont-diversify/#5014722e4795
     
    jys78 likes this.
  2. MKTrader

    MKTrader

    I think Buffett and those he learned from (Benjamin Graham, etc.) had an edge in a bygone era with value investing, concentrating (vs. diversifying), etc. It hasn't served him in the last 10 years, though.
    https://www.marketwatch.com/story/investors-should-no-longer-bet-on-warren-buffett-2019-03-01
     
  3. Is that because of the method or because of the type of companies/sectors he typically invests in? What if he invested in Amazon 10 years ago, would he have had similar results to the previous 50 years?
     
    Last edited: Aug 13, 2019
  4. %%
    Both are partly right. Mr Dallio is much more careful with his words. I cant really quarrel with Warrens ''buy + hold forever'' on single stocks, but i don't ,nor does he'do that all the time.LOL:D:D, :D:D:D:D:DAnd never was sure what Mr Buffet meant saying ''i dont understand tech[stocks]'' LOL Same here, except i never pretended to understand everything about tek or electric or gasoline power. BUt I'm not sitting in the dark 'till i do.....
     
  5. MKTrader

    MKTrader

    I don't think Amazon would've ever met his criteria and he's never been a fan of tech stocks...so I think it's a moot point.
     
  6. dozu888

    dozu888

    true that.

    also... it's not like Warren is holding 3 stocks.

    statistically speaking if you have 30 stocks, you are already indexing..... so Warren is just doing lip service, while holding a diversified portfolio.
     
    nooby_mcnoob and murray t turtle like this.
  7. tomorton

    tomorton

    Its all a bit academic. Apart from the very wealthy, most ordinary people are way over-exposed to stock market / economy cycles in their long-term investments, while their actual portfolios of stocks are too small to generate sufficient hedge from dividend income against negative circumstances.

    Most people's long-term investments are their house (subject to mortgage liabilities) and their pension. The bulk of most people's income comes from their employment in the private or public sector. All are sensitive more or less to the economy and the markets.

    On top of these things, financial managers then want us to invest in shares directly. That's just another egg in the same basket. Diversification is a poor protection against a serious downturn.

    But trading is, if you can go short.
     
    murray t turtle likes this.
  8. %%
    Many over-invest in a single stock= simply because thier company gives them a small discount LOL...........................................................................................................................
     
    tomorton likes this.
  9. TommyR

    TommyR

    sorry to get academic but hedge fund returns must tend to the index as size increases. the globalism.
     
    #10     Aug 13, 2019