Comments on: The Dangers Of Overdiversification http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification/ Value Investing Blog Mon, 16 May 2011 10:55:06 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Joe Ponzio http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification/#comment-3247 Joe Ponzio Fri, 23 Apr 2010 05:59:04 +0000 http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification#comment-3247 I try not to put more than 30% in any single sector or industry. On an eight to twelve position portfolio, I think that is a fairly good rule of thumb. I try not to put more than 30% in any single sector or industry. On an eight to twelve position portfolio, I think that is a fairly good rule of thumb.

]]> By: Diversification http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification/#comment-3185 Diversification Sun, 07 Mar 2010 00:48:44 +0000 http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification#comment-3185 well it all depends on the correlation between the stocks you have choosen many big mutual funds are having the same problem.I think some people try too much to remain secure but in a wrong way. well it all depends on the correlation between the stocks you have choosen many big mutual funds are having the same problem.I think some people try too much to remain secure but in a wrong way.

]]> By: Joe Ponzio http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification/#comment-3104 Joe Ponzio Sat, 19 Dec 2009 04:57:44 +0000 http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification#comment-3104 If you owned every stock in the US, you're right. If you owned every investment in the world, the best you could do is break even (in terms of real return). When many advisors talk about diversification, they talk not only about diversifying a stock portfolio, but other asset classes as well – real estate, commodities, bonds/debt, currencies, etc. At the end of the day, the world economy is a closed system and grows at the global inflation rate plus population growth, which would give you just about a 0% return. If you owned every stock in the US, you’re right. If you owned every investment in the world, the best you could do is break even (in terms of real return).

When many advisors talk about diversification, they talk not only about diversifying a stock portfolio, but other asset classes as well – real estate, commodities, bonds/debt, currencies, etc.

At the end of the day, the world economy is a closed system and grows at the global inflation rate plus population growth, which would give you just about a 0% return.

]]> By: Adam G. http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification/#comment-3098 Adam G. Mon, 14 Dec 2009 19:33:48 +0000 http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification#comment-3098 Joe, I'm not sure what you're getting at with this one. Diversification would only result in a zero-sum game if no wealth was ever created. If you were invested in every company in the 1950s, you would certainly be wealthier now. Joe,

I’m not sure what you’re getting at with this one. Diversification would only result in a zero-sum game if no wealth was ever created. If you were invested in every company in the 1950s, you would certainly be wealthier now.

]]> By: Robert Crawford http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification/#comment-810 Robert Crawford Mon, 19 Nov 2007 08:36:17 +0000 http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification#comment-810 Iskander, that depends on whether you are considering the prior / earlier average or the current average during an expansion. If comparing current growth rates to prior growth rates, yes, it is possible for everyone to benefit (a rising tide lifts all boats). If, on the other hand, you mean it is possible for everyone to exceed the average in real time, this is not possible. Even in the rare case where the average falls between a large cluster of those exceeding the average with one significant outlier falling well below the average, that one outlier is necessary to create such a favorable average. At that point, however, the average ceases to have informative meaning, and it is why statisticians spend so much time considering the outliers (often called "residuals," which is technically a statistical term for data points exceeding three standard deviations from the mean). Iskander, that depends on whether you are considering the prior / earlier average or the current average during an expansion. If comparing current growth rates to prior growth rates, yes, it is possible for everyone to benefit (a rising tide lifts all boats). If, on the other hand, you mean it is possible for everyone to exceed the average in real time, this is not possible. Even in the rare case where the average falls between a large cluster of those exceeding the average with one significant outlier falling well below the average, that one outlier is necessary to create such a favorable average. At that point, however, the average ceases to have informative meaning, and it is why statisticians spend so much time considering the outliers (often called “residuals,” which is technically a statistical term for data points exceeding three standard deviations from the mean).

]]> By: Iskander http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification/#comment-807 Iskander Sun, 18 Nov 2007 19:18:12 +0000 http://www.fwallstreet.com/article/6-the-dangers-of-overdiversification#comment-807 Do you not mean that the more diversified your portfolio, the closer you come to earning market average? The world is not zero-sum. Neither is the stock market. When wealth is created, it is possible for everyone to gain. It's just impossible for everyone to make above average returns. Do you not mean that the more diversified your portfolio, the closer you come to earning market average?

The world is not zero-sum. Neither is the stock market. When wealth is created, it is possible for everyone to gain. It’s just impossible for everyone to make above average returns.

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