Diversification vs. Specification

F

Foxtrader

All of the Guru's on places like CNBC and wealth management books out there always seems to pound away at the idea of having a diversified portfolio. I have read many places that if you are going to play around with options you should only use something like 2-5% of your entire investment in risky derivatives. For the past 15 years I have done the complete opposite. I have never purchased one stock, or one bond. I have specialized exclusively on derivatives. That is the only thing I buy and sell on a daily basis. Just wondering what other people's investment allocations are?
 
Foxtrader said:
All of the Guru's on places like CNBC and wealth management books out there always seems to pound away at the idea of having a diversified portfolio. I have read many places that if you are going to play around with options you should only use something like 2-5% of your entire investment in risky derivatives. For the past 15 years I have done the complete opposite. I have never purchased one stock, or one bond. I have specialized exclusively on derivatives. That is the only thing I buy and sell on a daily basis. Just wondering what other people's investment allocations are?
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For me, roughly 1/3 real estate, 1/3 very diversified long-term portfolio of stocks/bonds/funds, and 1/3 trading capital.
 
I have had only two long-term investments for the past 20 years - my house and my pension. Both are pretty healthy and have good long-term prospects. These make up the bulk of my investments and income

I would not consider increasing my commitment to long-term investments further, partly because of the poor rate of return and partly because they would not diversify risk from the other two.

All my available capital in that time period has gone into trading. Trading offers diversification and better return BUT ONLY IF you can go short as well as long.
 
correlation also remember. according to investment professionals ive spoken to the magic numbers n are given by
0.5*n^2=integral (1-0.5*(1+n)/(1-n)^2) =arctan(1+n/n-1). thats stocks bonds equities :)
 
Foxtrader said:
All of the Guru's on places like CNBC and wealth management books out there always seems to pound away at the idea of having a diversified portfolio. I have read many places that if you are going to play around with options you should only use something like 2-5% of your entire investment in risky derivatives. For the past 15 years I have done the complete opposite. I have never purchased one stock, or one bond. I have specialized exclusively on derivatives. That is the only thing I buy and sell on a daily basis. Just wondering what other people's investment allocations are?
More...

Whatever allocation you have... hedge tail risk... otherwise you’ll never get the returns you expect to get.

https://www.bloomberg.com/news/videos/2016-05-12/nassim-taleb-on-the-importance-of-probability

And to answer your question, I only trade options.

And to add my 0.02c, the literature around markets and how one should behave in them are about, id say, 99.9% false. Just look around.

And to add again, I don’t believe in diversification of assets, I believe in diversification of risk itself. I take MASSIVE risk on one hand, and no risk at all on the other hand using the same asset type; such as options.
 
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