Why not diversify?

yellowkid

Things seldom turn out as they are expected too, and no one knows what lies down the road. Given this, why wouldn't you diversify your portfolio or assets. isn't putting everything in one asset class betting ? We have real estate, raw land (timber,) stocks, bonds, PM's, antiques and collectible coins. I don't know what the economic climate will be like next year, or twenty or twenty five years from now ( my rosey outlook) but some of my assets will still be there. I am retired and have to live on what these assets through off, what if I'm in just one of them and it goes into the doldrums, or crashes for a lengthy period?

Baley

KUCH

Diversify=Moderate Risk
All In One Asset=High Risk

I pick two major asset classes and try to become an expert. Lessens my risk factor.

Think Donald Trump, Warren Buffit, Bill Gates, Steve Jobs. The experts at what they do.

I think it takes 10,000 hrs to become the BEST at something. There's no way around the time one needs to spend actually doing that one thing. If my math is correct (math is not that one thing for me), that's 8 hrs at day for 10 years. Otherwise, hire an expert.

Pokermandude

Knowledge is key. As Warren Buffet once said "Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing."

Basically, don't diversify just for the sake of not putting all your eggs in one basket. If you know a lot about a particular market, and that market is good, why put money into "other" worse baskets just to be "diverse"?

As an example, I don't do any trading or hoarding of other (non US/Canadian) currencies. Some might think this is a good hedge or good way to be diverse. But I have little knowledge of these markets and I highly doubt I could do better in these currencies than with precious metals or stocks/mutual funds. So (for me) it makes no sense to diversify into this area.

derryb

I'm diversifed. not counting real estate (my home) 3% US dollars, and 97% metals. I don't believe in hedging - if I'm not convinced an asset has upside, I have no business investing in it. When I no longer believe in metals my 97% will go elsewhere. Why put 50% on black and 50% on red; makes no sense.

yellowkid

<< <i>I'm diversifed. not counting real estate (my home) 3% US dollars, and 97% metals. I don't believe in hedging - if I'm not convinced an asset has upside, I have no business investing in it. When I no longer believe in metals my 97% will go elsewhere. Why put 50% on black and 50% on red; makes no sense. >>



I don't think your analogy is valid, you break even in any outcome on the roulette table betting like that. Anyhow, I've " invested" in many different areas since the early 70's, in some cases I sold at the right time, in others too soon, and in some not soon enough. IMHO the best of us, no matter the level of our expertise, can be blindsided by the unexpected. I don't see the prices of PM's crashing any time in the near future, but who knows? Isn't it a huge bet?

jmski52

Diversification across asset classes does reduce one kind of risk, but not all kinds of risk. In my opinion, diversification was over-sold during the '80's & 90's to the point where people accepted the strategy without question.

There are some good reasons why I will eventually sell out of some of my metals holdings, but I don't think that diversification of risk will be one of those reasons. I think that the roulette analogy is a pretty valid one, these days.

renman95

<< <i>

<< <i>I'm diversifed. not counting real estate (my home) 3% US dollars, and 97% metals. I don't believe in hedging - if I'm not convinced an asset has upside, I have no business investing in it. When I no longer believe in metals my 97% will go elsewhere. Why put 50% on black and 50% on red; makes no sense. >>



I don't think your analogy is valid, you break even in any outcome on the roulette table betting like that. Anyhow, I've " invested" in many different areas since the early 70's, in some cases I sold at the right time, in others too soon, and in some not soon enough. IMHO the best of us, no matter the level of our expertise, can be blindsided by the unexpected. I don't see the prices of PM's crashing any time in the near future, but who knows? Isn't it a huge bet? >>



Second that....

cohodk

In my dealings with clients over the years I've found that those who were heavily invested in an idea where not only financially invested but also emotionally and psychologically. And unfortunately the combination of those two usually clouds rational and logical thought. Sometimes my clients did well, othertimes not. So may as well just went to the roulette table.

derryb

<< <i>I don't think your analogy is valid, you break even in any outcome on the roulette table betting like that. Anyhow, I've " invested" in many different areas since the early 70's, in some cases I sold at the right time, in others too soon, and in some not soon enough. IMHO the best of us, no matter the level of our expertise, can be blindsided by the unexpected. I don't see the prices of PM's crashing any time in the near future, but who knows? Isn't it a huge bet? >>


Of course it is, but I like the odds.

RedTiger

There is no arguing with "true believers." For some gold is like a religion.

There are some smart people on this forum, and I'm sure some of them will get out in plenty of time. Many others will not be so fortunate. As with all major market tops, only a very small group gets out near the top, and a large group will have substantial losses. Many of those that went "all in" will have life shattering losses. Every one of them thinks they are above average, and every one of them thinks they will get out in time, that the "other guy" will be the bag holder. It is the nature of tops in every market.

Me, I'm not so smart, not so nimble, with not very good instincts. If I went "all in" every time I had a strong gut feeling for some investment I would have been broke a hundred times over. I do envy those with the talent, the 10,000 hours of time, the gut, or whatever else they have, but for me, over 20 years in the markets has taught me to be humble. Very humble.

secondrepublic

I agree with some level of diversification; but that doesn't mean you put 10% of your assets on ten different things. I am about 10% in cash, about 13% in precious metals and numismatic coins, 2% in stocks, and the other 75% in land, rental properties, and my home. I'm happy diversifying into two things I know pretty well -- metals and properties -- and that approach makes the most sense to me. If the economy improves and property prices rise, great - I'll make money. In the meantime, I am getting rents and sitting happy without much debt. If precious metals prices rise, great, that's another way to make money even if real estate continues to stagnate. I believe some amount of diversification gives you a chance to "score" if different scenarios play out. But that doesn't mean you diversify into things you don't understand/trust. I don't have any expertise in the stock market, or in municipal bonds, or whatever else, so why would I put a significant amount of money in there? Seems like a recipe to get fleeced. Just because other people are doing so, just because the media and so-called experts tell people to do so, is no reason.

jmski52

There is no arguing with "true believers." For some gold is like a religion.

I've held my assets mostly in stocks at times. I hold my assets mostly in precious metals now. You don't have to be a true believer in pms if you believe in actively sheparding your money through volatile environments, but you do have to pay attention.

Me, I'm not so smart, not so nimble, with not very good instincts. If I went "all in" every time I had a strong gut feeling for some investment I would have been broke a hundred times over. I do envy those with the talent, the 10,000 hours of time, the gut, or whatever else they have, but for me, over 20 years in the markets has taught me to be humble. Very humble.

I'm in PMs because I don't know what else is better right now. As always, there may be special situations stocks that are worth taking a look, but that's a specialized game. I think that the stock market is as ripe for a fall as I've ever seen it. PMs will follow stocks down if it happens. The biggest risk, in my opinion is what happens in the markets after that. I think that company earnings in general are being held up artificially by the Fed, and are particularly vulnerable because the real estate bubble is no longer a driver for the economy. Sinclair notes that the petrodollar is being circumvented and this is significant to our ability to live well and cheaply.

Timmy Geithner is not your friend, neither was Hank Paulson, nor Ben Bernanke, nor Alan Greenspan, nor Jamie Dimon, nor John Corzine. And these guys are only the tip of the iceberg. Things are pretty corrupted. I don't believe that the economy is "back on an even keel". We won't know what's really going to happen until after the election. I could be wrong about the economy - it wouldn't be the first time.

jmski52

Blackrock: "We favor companies having free cash flow". "We like the US". Well, duh.

Weiss

<< <i>Knowledge is key. As Warren Buffet once said "Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing."

>>



That's rubbish. You might have a 6th sense about the gold market and have impeccable timing with unprecedented returns on your trades. And someone could hit you over the head and take your gold. You could have the greatest cash-flowing apartment complex in town. And someone could put up a methadone clinic next door.

Diversification is insurance.

piecesofme

This sounds like a rich persons thread. I don't have enough TIME to diversify. Time is BY FAR my most valuable commodity. So for that reason, i'm out