What’s the point of portfolio diversification?

Hello Fiotrader,

You will never get rich (rich meaning $1 million) fast (fast meaning less than 2 years) doing Portfolio Diversification because you need $1 million dollars to begin with.

Pick one trading idea or investment strategy and going all in and bet the house on it.

Go to SP 500 index if you want diversification

 

In a bear market almost everything falls. The best way to control risk is to have a method of getting out in a down market.

 

Portfolio diversification is spreading of investments so that your exposure to any one type of asset is limited.

 

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So thats why so few beat a diversified benchmark like SPY??[sarcasm].You maybe on to something with trends.
NOT saying some can not beat benchmark like SPY, my question was noting so few do.

 

If you are short 100% in 1 stock and that stock get's bought out then you are f*cked!

 

That's the beta risk or the systemic risk; that's not a risk that can be eliminated or reduced by portfolio diversification. No matter how well a portfolio is diversified, it will always be subject to some risk that will affect its performance.

 

That's why you need some method of risk control. Diversification isn't it.

 

Portfolio diversification is for safe investments. For example you should not ever use for a trading website like ET.

The point of it is really to prevent you from losing all of your money in a long bear market. So for example, lets say stocks will go down for the next couple of years, but once the Fed stops raising interest rates, bonds will be a good investment until they lower rates again.

So this is your free financial advice.

However, the point of actual trading is to have an edge that makes you money all the time no matter if stocks go up or down.

Peter Sullivan:
Will? Did you really make two and a half million last year?

Will Emerson:
Yeah, sure.

Peter Sullivan:
How did you spend it all?

Will Emerson:
It goes quite quickly. You know, you learn to spend what's in your pocket.

Seth Bregman:
Two and a half million goes quickly?

Will Emerson:
All right, let's see. So the taxman takes half up front, so you're left with one and a quarter. My mortgage takes another 300 grand. I send 150 home for my parents, you know, keep them going. So what's that?

Peter Sullivan:
800.

Will Emerson:
All right, 800. Spent 150 on a car. About 75 on restaurants. Probably 50 on clothes. I put 400 away for a rainy day.

Seth Bregman:
That's smart.

Will Emerson:
Yeah, as it turns out, 'cause it looks like the storm's coming.

Peter Sullivan:
You still got 125.

Will Emerson:
Yeah, well, I did spend $76,520 on hookers, booze, and dancers. But mainly hookers.

Peter Sullivan:
76.5?

Will Emerson:
I was a little shocked initially, but then I realized that I could claim most of it back as entertainment. it's true.

 

It is important to diversify but it is also necessary to take calculated risks and not over diversify.

 

Diversification essentially means avoiding overexposure to any one currency. And as the old saying goes, don't put all your eggs in one basket; instead, build a diverse portfolio.