The diversification debate
- August 31st, 2011
I always find it interesting when two of my favorite bloggers come out on opposite sides of a topic at the very same time. Today the topic is diversification. First up Howard Lindzon with one of his rules for investing:
2. Diversification is overrated. Bill Gates is only diversified because he has money managers and an estate plan to think about. You don’t have that problem.
Next up Carl Richards writing at the Bucks Blog on the so-called “lost decade for stocks”:
Clearly things were bad for the S.&P. 500 during the past decade, but singling out one market to declare a decade of investing as “lost” ignores the reality: a broadly diversified portfolio can deliver respectable returns even if individual classes perform poorly.
First off both pieces are worth reading in their entirety. Allow me to split hairs here. Carl is correct that a broadly diversified portfolio is the best solution for the vast majority of investors. Howard’s advice is targeted more towards intrepid investors, like himself. In that sense both bloggers can be correct.
This highlights one of the great challenges of the investment blogosphere. Bloggers come at topics with different experiences, perspective and audiences in mind. Readers need to do their part in understanding the perspective of the blogger before they can truly understand their advice.
Abnormal Returns is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Abnormal Returns has over its seven-year life become a fixture in the financial blogosphere. Over thousands of posts we have striven to bring the best of the financial blogosphere to readers. In that time the idea of a “forecast-free investment blog” remains as useful as it did six years ago. More »
- Saturday links: systems vs. goals
- Friday links: avoiding complexity
- A transitional moment for advisors
- Active vs. passive: try harder or do something easier?
- Thursday links: sticking to beta
- Wednesday links: the allure of stock picking
- Tuesday links: unbundling risk and return
- Software is eating investment management
- Monday links: lottery stocks
- Sunday links: true confidence