Diversification good or bad?

Discussion in 'Risk Management' started by oraclewizard77, Jan 22, 2009.

Diversification is the holy grail.

Poll closed Feb 1, 2009.
  1. Stay Diversified

    8 vote(s)
    72.7%
  2. Concentrate your portfolio in just a few stocks.

    2 vote(s)
    18.2%
  3. Stay with Cramer

    1 vote(s)
    9.1%
  4. Way too many polls here on ET

    0 vote(s)
    0.0%
  1. rew

    rew

    GE is a solid company?! The only reason it's not bankrupt is because the government bailed it out with cheap money. I don't want to own any shares when it goes off life support.
     
    #21     Jan 26, 2010
    murray t turtle likes this.
  2. Newc2

    Newc2

    Old thread but though i would bring it up. I diversify into 10 different equities across Nasdaq and AMEX (having learned the hard way of just holding an oversized single stock at a time)

    I enter where my stop is at around 3% to 5% below my entry where I feel like the probability is it won't be hit.

    The setup is the same in all stocks so diversification is NOT negative but has the benefit of reducing the effect of a negative move on my equity.

    This results in a smoother equity curve.

    Those who are suggesting that diversification is bad

    either

    1. Have a system that does not generate enough good setups OR
    2. Have a poor entry method so are hoping for luck on their single oversized position


    10 positions is small enough to beat the index but also minimize risk
    Having said that a market crash could hit them all but then it would do that to a single position anyway.
     
    #22     May 11, 2018
    Scataphagos and murray t turtle like this.
  3. ironchef

    ironchef

    If you are the buy and hold type, 10 is not diversified. I hold the same ~10 stocks for years. It took an iron stomach to hang in there and not weaver during the horrendous drawdown in 2000 and 2008. I still have nightmares on those drawdowns.:banghead:

    For trading since many traders only trade one stock or index maybe 10 is diversified enough. But perhaps it is not number of equities but number of strategies that diversifies the risks? Some strategies are better for bear and some are better for bull markets?
     
    #23     May 25, 2018
    Newc2 likes this.
  4. %%
    Great 2010 post, up to date;GE cant even get above 50% of 52 weeks. NOT a prediction. AS far as putting all eggs in one basket- that 's chickens, not the stock market.Some think Andrew Carnegie was only in steel co but that's wrong.
     
    #24     Jun 15, 2018
  5. yeah take some profit and get some cash ...keep some stocks...throw 5% to crypto for speculation...seems like a good time...don't know your age though...

     
    #25     Jun 15, 2018
  6. Partly agree about diversification. To survive long term, you must diversify. 3 ways...

    1. Diversify issues, your present choice.. 10 stocks is enough to cushion against "single issue shock"

    2. Diversify asset classes (I have never done that)

    3. Diversify by opportunity, but not too heavily in one or two issues... ETFs the exception, as they're not based upon "a few issues"
     
    Last edited: Jun 16, 2018
    #26     Jun 16, 2018
  7. wrbtrader

    wrbtrader

    Trade, Invest, Insurance (medical/dental, disability, life) and Pension Plan

    Diversification
     
    #27     Jun 16, 2018
  8. _eug_

    _eug_

    I wouldnt be able to sleep at night if my entire networth was riding on one position. Diversification for piece of mind!
     
    #28     Jun 16, 2018
  9. deaddog

    deaddog

    To quote Darvas

    "Diversifying over a large number of stocks leads to only average performance. Since only 3 or 4 will produce big profits the remaining stocks drag the performance down.

    Diversifying over a large number of stocks doesn't mitigate risk. In a bear market all stocks fall. The best way to control risk is to have a method of getting out of stocks in a down market."
     
    #29     Jun 26, 2018
  10. Buckey

    Buckey

    Just got an idea to share. Your perfect example is you.

    Your body is well-diversified into reasonable parts. In case if an arm is gone, still there is another part available to work on; leg, another leg to work on. So why not your money?

    If it's too much diversified like an alien or monster, well, we all don't like it, it's looking bad. lol
    We have to kill them. :D:banghead:
     
    #30     Jul 3, 2018