Undoubtedly, diversification is good as it enables risk reduction and allows portfolio re-diversification once financial goals change over a period of time but sometimes it also add complexity to the investment process. If you have money $ 20000, then it is better to invest that money into one investment rather investing in to 10 companies which requires diligence.
Diversification good or bad?
- Thread starter oraclewizard77
- Start date
Yaa right! Another thing to note is that many people confuse diversification with over diversification. Hence apart from your goals, risk potential etc you should also know till what extent you should diversify.
Can you please detail your view a little?
Diversifying your portfolio is probably the best way to reduce the potential risk so that your losses can be adjusted with the profit that you gained in another way.
Diversification doesn’t always protect you from risks. The key to success is to do it smart.
Much diversification bashing.
I am in the process of diversifying as I am managing several accounts
I am looking at 50 equities positions across all accounts
Here is my reasoning.
1. I have a profitable edge
2. Opportunites to execute my edge are plentiful
3. I do not know which positions will be profitable
4. My system is semi-automated so easy to manage
5. When people talk about how Mr XYZ has done well being concentrated, it is not mentioned that Mr XYZ is a survivor (maybe 1 in 100) and there are many multiples of these traders who did not survive and therefore we don't hear about.
6. My comissions are negligible
7. Divserfication allow one to move into the market slowly. This allows one to 'test the water' for good trading conditions without risking too much capital to find out.
8. Diversification can smooth out an equity curve
9. A smoothed equity curve allows one to keep to the strategy
10. A smoothed equity curve assists with compounding returns
The success of diversification is dependent on the above but seems to help reduce the gambling element to trading.
Diversification is no good to those without a profitable system.
I am in the process of diversifying as I am managing several accounts
I am looking at 50 equities positions across all accounts
Here is my reasoning.
1. I have a profitable edge
2. Opportunites to execute my edge are plentiful
3. I do not know which positions will be profitable
4. My system is semi-automated so easy to manage
5. When people talk about how Mr XYZ has done well being concentrated, it is not mentioned that Mr XYZ is a survivor (maybe 1 in 100) and there are many multiples of these traders who did not survive and therefore we don't hear about.
6. My comissions are negligible
7. Divserfication allow one to move into the market slowly. This allows one to 'test the water' for good trading conditions without risking too much capital to find out.
8. Diversification can smooth out an equity curve
9. A smoothed equity curve allows one to keep to the strategy
10. A smoothed equity curve assists with compounding returns
The success of diversification is dependent on the above but seems to help reduce the gambling element to trading.
Diversification is no good to those without a profitable system.
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How much time is required to manage your portfolio?