Diversification

[winston]

The Controversial Advice That Warren Buffett Uses To Beat The S&P
Author: Street Authority

It might be one of the most controversial statements I’ve ever made. You aren’t likely to hear anyone else say it, as it goes against one of investors’ longest-held beliefs.

I think diversification actually hurts your returns.

I’m not saying you should have a portfolio of just two or three holdings. But at the same time, I’m not at all concerned with having a portfolio of dozens of holdings that represent every sector of the market.

After all, it’s impossible to outperform the market if your portfolio is the market.

http://www.yolohub.com/trading/the-cont ... eat-the-sp

[winston]

Pig

The most obvious difference between the average "at home gambler" and the average professional investor is position sizing.

The professional is never, ever a pig. That is, professional investors never allow themselves to build huge positions – not even in their best ideas.

They would never pile 20% of their portfolios into a single idea. They know there are too many things that can go wrong, factors that are impossible to foresee.

As a result, professionals always diversify their equity portfolios. The most focused professional investors will usually have at least 20 different positions.

Meanwhile, the most diversified individual investors rarely have more than 20 different positions. Thus, individual investors are sometimes "pigs" – overloaded into an idea – without even knowing it.

Source: Growth Stock Wire

[winston]

The "Painful" Truth About Diversification

By Robert Hsu

It's important to be introspective, to ask yourself tough questions, and then answer honestly. Questions such as:

Can I sit through periodic drawdowns of 30% or more in a holding?

Can I go for years with a paper loss that bites into my overall wealth picture?

Do I value capital growth over capital preservation?

If you say "no," then you are a candidate for diversification.

http://moneymorning.com/2013/10/31/the- ... ification/

[winston]

5 Simple Ways to Boost Your Stock Returns

By Rudy Martin

Source: Uncommon Wisdom Daily


http://www.thetradingreport.com/2014/05 ... k-returns/

[winston]

Robert Allen on Getting Rich

"There is a time to diversify and a time to concentrate.

If you are just beginning to create wealth, you concentrate. You pick a strong investment and throw your whole energy into it.

Don’t dissipate your energies in a dozen different directions.

Become an expert, and when you fail, learn from your failures; add this precious knowledge to your storehouse and proceed to correct the mistake in the future. "

- Robert G. Allen

[winston]

A Simple Way to Survive the Next Market Crash By Brian Hunt and Ben Morris

If you're worried about a big stock market drop, please read today's issue carefully.

Below, we share a simple – yet extremely powerful – idea that could save your portfolio from the next market crash. Despite its power, many folks get it all wrong. They end up making mistakes that can set them back years… even decades.

Longtime readers know we urge investors to think about risk a lot more than reward. Risk is always the No. 1 focus of professional investors… But amateur investors tend to think only about how much money they can make.

That's why, if you want to make outstanding investment returns over the long term, you need to take care of the downside. And one of the ultimate ways to take care of the downside is to avoid huge bets in one single sector…

An amazing story from the 2000-2002 stock market crash shows us how it works…

Imagine you were investing in the late 1990s. Like most folks back then, you were watching Internet stocks soar. Then in 1998, you started buying some of the top-performing names in the sector. You were making a killing… So you kept at it until nearly your entire portfolio was allocated to technology stocks.

Lots of smart people got sucked into the trap. When the tech bubble burst in 2000, the S&P 500 Information Technology Sector Index – which housed a lot of the popular tech names – dropped 83%. It still hasn't surpassed its old highs.

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This was a so-called "diversified" index… not just a few bad apples. But the stocks in the index are highly correlated. When one falls, they all fall. It would have turned a $100,000 account into just $17,000 in two and a half years. This kind of loss would take a 488% gain to recover from. As you can see, making that money back can easily take more than a decade.

But take a look at the returns of the 10 different industry groups of the S&P 500 over that same time frame. The rest of the market wasn't nearly as bad as the technology sector. Many other sectors – especially consumer staples – held up far better.

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If you were holding 10% of your stocks in each of these 10 sectors, the crash would have resulted in a 33% drop instead of 83%… And your account would have fully recovered within two years.

This idea of owning stocks in different sectors ties in with the bigger idea of asset allocation. Just as it's important to hold different types of stocks, it's even more important to spread your wealth among different asset classes… like bonds, gold, real estate, and cash.

In the case of an all-out financial storm (like many are predicting right now), this will prevent catastrophe.

Let's take another look at that 2000-2002 time frame. In the chart below, you can see how other asset classes performed while tech stocks were crushed and the stock market in general (the S&P 500 Index) struggled.

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The moral of the story: Own stocks… But own stocks in different market sectors. And don't keep all of your money in stocks. Holding gold, bonds, and other assets goes a long way toward protecting your wealth.

It's the simple way to survive the next market crash. It has worked in the past… and it will very likely work again.

Source: DailyWealth Trader

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When Diversification Works

Here are three reasons I think it makes sense to broadly diversify, both globally and within an asset class:

No one really knows how the future is going to turn out. The U.S. has been the clear winner over the last century or so in terms of becoming an economic and stock market powerhouse.

It’s hard to see that changing anytime soon but who knows how these things will play out in the future from a relative perspective. Diversification is an admission of a lack of foresight about an uncertain future.

Diversification is never going to protect you from horrible days, months, quarters or years. It really earns its stripes over longer periods of time (which are the only ones that should really matter to investors).

The only way it works is if you have the patience to follow through with it. Like all reasonable investment strategies, it’s never going to feel great all the time.

Successful investing really boils down to regret minimization. Think about being a U.S.-only investor and missing out on those huge relative gains in foreign stocks the 70s and 80s.

Or think about being a foreign investor and missing out on the huge relative gains in U.S. stocks in the 90s and more recently.

Most investors will be better off thinking globally, not because it promises higher returns, but because is reduces concentration risk.

Diversification is still one of the best forms of regret minimization and risk management an investor has..

Source: A Wealth Of Common Sense

http://awealthofcommonsense.com/when-di ... ion-works/

[winston]

Portfolio Diversification Made Simple

By Brian Bolan

The academics all agree that the best number of stocks to hold in a portfolio is somewhere between 15-20 names.

One concept that is key to proper diversification is to hold stocks from several different sectors.

It is about thinking in broader sector terms like technology, retail, auto, energy, industrials, healthcare, transportation, etc.

It's fine to have extra exposure to the hottest groups. However, try not to have more than 30% in any one industry.

Select good stocks that have strong near term potential to get off to a good start and then hold them for the long term.

Source: Zacks

http://finance.yahoo.com/news/portfolio ... 08773.html

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Why You Need to Diversify Your Personal Equity

Owning a good mix of stocks, bonds, real estate and gold doesn't mean you're fully diversified

by Kim Iskyan

Source: The Street

https://www.thestreet.com/story/1364132 ... yptr=yahoo

[winston]

The Upside of Losing Half Your Money

The importance of extreme diversification.

by Morgan Housel

The key making a lot of money is to own so much stuff that you guarantee capitalism will destroy most of your investments, but equally sure than a tiny group of successes will offset those losses.

Over time, the overall return converges on the best elements of the portfolio.

The benefits of diversification are well known. But I wonder how many index fund owners realize half their hard-earned money is going up in flames – by design.

Source: Motley Fool

http://www.fool.com/investing/2016/08/1 ... money.aspx