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Diversification is for people who have no idea what they're investing in. Portfolio theory is spray/pray with no information which is what VCs do with unestabli
by manigandham 7y ago
Diversification is for people who have no idea what they're investing in. Portfolio theory is spray/pray with no information which is what VCs do with unestablished startups, hoping for the wins to beat the losses. If you want to be that passive then just buy an ETF or all the large-cap blue-chip dividend stocks instead to keep it simple.
Investment funds with a real thesis and research don't do this. Concentrated positions and proper risk management is active investing and generates much greater profits. If you know a sector and company is doing well, diversifying will only reduce your returns.
- perl4ever 7y agoDiversification can mean different things to different people. If you mean that >30 stocks is pointless, I agree. How much different is the Dow than the S&P 500 or the whole market, even though its methodology is atrocious? If you mean that even with a large edge, you should take positions that are >20%, I don't agree.
- manigandham 7y agoThen we don't agree. The concentration of a position depends on the confidence of the investment and direction. 20% isn't a magical rule, no point in following it blindly.
- perl4ever 7y agoI mean, it's like sticking a knife in an electrical socket. Can you get away with it, possibly? Sure. That doesn't mean there's a significant downside to a rule of not doing it.
- ram_rar 7y agoIn theory, you sound good. But, in a 10 year window I have barely seen anyone beating S&P500.
- manigandham 7y agoWho do you mean by anyone? I know traders averaging 30% and the best one has done over 100% so far this year, and these are 6 and 7 figure accounts.