Diversification good or bad?

[murray t turtle]

I currently have one really good stock idea but most of my portfolio is diversified.

I was wondering if I should sell down most of my other other stocks to concentrate on this idea if it works out could be a 300% return or play it safe and stay will a small % of my portfolio.

Cramer keeps harping about diversification but if the market goes down, I don't see how that really helps since all stocks go down.

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One single stock would way to much risk for most or any.Cramer of Cramer Berkowitz is right, on that one; not that its ''bear proof'' LOL. Many companies give workers a big discount, on co stock; DAL, GM, Bear Stearns ...... went bankrupt anyway.100 stock or 500 ETF could be to many; but better to many than a single stock. Even Bill gates sold plenty MSFT. NOT a tech sell signal/prediction LOL

 

[deaddog]

If diversification is a good thing then buy the whole market with an ETF. You won't get market beating results for obvious reasons. You can further diversify by asset class and add some fixed income to your portfolio to knock your performance down a few more points.

Buffet suggests the average investor have a portfolio of 90% S&P index and 10% bonds. On the other hand he is also quoted as saying""diversification is protection against ignorance. It makes little sense if you know what you are doing."

My take is if you have a strategy in place to control risk it is not necessary to widely diversify.

Why keep stocks in your portfolio that are not performing the way you expected them to perform?

 

[murray t turtle]

If diversification is a good thing then buy the whole market with an ETF. You won't get market beating results for obvious reasons. You can further diversify by asset class and add some fixed income to your portfolio to knock your performance down a few more points.

Buffet suggests the average investor have a portfolio of 90% S&P index and 10% bonds. On the other hand he is also quoted as saying""diversification is protection against ignorance. It makes little sense if you know what you are doing."

My take is if you have a strategy in place to control risk it is not necessary to widely diversify.

Why keep stocks in your portfolio that are not performing the way you expected them to perform?

I see your points ,but who would ever think +prove Buffet/fund is not diversified?=============================================He may have said that ; but i watch what they do, not what they say.He did admit he/fund is less likely to outperform , as his fund gets older , but i would not call that a prediction. LOL .SPY is the benchmark, more than a few do better that that....Your last line is a good one also; let's see if you admit the truth about Buffet 's comments??

 

[deaddog]

No doubt Buffet is diversified.

And he knows what he is doing so his comments don't apply to him.

I still believe that diversification does not mitigate portfolio risk, it only serves to limit performance.

 

[treeman]

Depends what you’re diversified into. If it’s a basket of equities and bonds, then i agree. Diversifying in multiple asset classes (4-6) reduces overall volatility drastically, and has the side benefit of cushioning an incorrect call.

 

[ironchef]

No doubt Buffet is diversified.

And he knows what he is doing so his comments don't apply to him.

I still believe that diversification does not mitigate portfolio risk, it only serves to limit performance.

I don't think Buffett is diversified. He himself said so. 80% of his company's equity investment is concentrated in about 10 stocks. His own businesses are also quite concentrated.

In fact, most of the world's richest are very concentrated.

However, Buffett said concentration is not for those not knowledgable. He famously said that he asked his wife to put their assets into index funds after his passing.

In summary, whether we should diversify depends on our competency. For some like the elites here, diversification limits their gains. For others like me, it is probably the correct thing to do.

 

[deaddog]

Depends what you’re diversified into. If it’s a basket of equities and bonds, then i agree. Diversifying in multiple asset classes (4-6) reduces overall volatility drastically, and has the side benefit of cushioning an incorrect call.

What asset classes are you referring to? Have to admit I'm unable to come up with 4-6 liquid classes that I could invest in with limited capital.

Equities, Bonds, maybe REITs (real-estate), I'm unsure what else I could put my money into that I can get out of in a hurry.

 

[deaddog]

I don't think Buffett is diversified. He himself said so. 80% of his company's equity investment is concentrated in about 10 stocks. His own businesses are also quite concentrated.

He owns shares in about 50 different publicly traded companies and owns over 50 different privately owned companies.

We have different definitions of diversification.

 

[treeman]

Metals, Ag, energy, Currencies, Stocks, Bonds, real estate, utilities, cash. Correlations oscillate. There are sub categories in each. It's not to hard to figure out which are outperforming. Basically, these are the buckets people have to place money. It all rotates. Follow the rotation.

 

[deaddog]

Metals, Ag, energy, Currencies, Stocks, Bonds, real estate, utilities, cash. Correlations oscillate. There are sub categories in each. It's not to hard to figure out which are outperforming. Basically, these are the buckets people have to place money. It all rotates. Follow the rotation.

Too complicated for me.

I'll just continue to buy stocks that trend upwards and get out when the trend ends.