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>>This is because the vast majority of the returns of an index come from a very small number of outperforming stocks. This is the only thing the parent comment
by icelancer 9y ago
>>This is because the vast majority of the returns of an index come from a very small number of outperforming stocks.
This is the only thing the parent commenter needs to read to understand why indexing is not equivalent to owning 15 stocks that theoretically reduce portfolio risk (my guess is that the stocks are highly correlated and have too high of weight towards IT and not enough towards boring fields like industrials).
- rwmj 9y agoActually the opposite. Being in IT, I never buy IT stocks. They're mostly everyday brands and industries.
- icelancer 9y ago>>Being in IT, I never buy IT stocks. That, ah, is even worse. Your diversification... isn't. Just because you have a job in IT doesn't mean that's adequate exposure. There is a large difference between a paycheck and investments in the large cap IT sector.
- ng12 9y agoWhy not? I do the opposite -- I only invest in stocks in industries I know something about. It's the only appreciable alpha I have.