The diversification debate

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.

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