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Diversification Is For Amateurs
05-28-2008, 09:04 AM
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#1
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Recycles dryer sheets
Join Date: Mar 2008
Location: Washington, DC
Posts: 75
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Diversification Is For Amateurs
The latest (and last) Sophisticated Investor column from MarketWatch lists the five money management tips we can learn from the wealthy.
Number 2 is especially interesting.
Quote:
2) Investing: Long-term growth may be the road to success, but you have to take risk to get rich. No guts, no blue chips, as they say. Concentrated, thoroughly researched positions will make you rich. Diversification, as money manager Marty Whitman -- a hall of fame investor in my mind -- says, "diversification is for amateurs."
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05-28-2008, 09:15 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Diversification is for people who don't want to wake up some morning suddenly needing a job.
As for MJ Whitman, take a look at his 3rd Avenue Fund. Maybe he is an amateur, because this fund is widely diversified- though not like an index.
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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05-28-2008, 09:15 AM
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#3
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,472
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"Diversification is for amateurs"?
Uh huh...
After all, why spread risk when you can HAVE IT ALL!
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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05-28-2008, 09:15 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 2,020
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Well, I'm an amateur so I'll stay diversified.
I'd agree that a concentrated position is the only sure path to quick riches or quickly losing it all.... be sure it's all in naked puts as well. No sense saying you're going to go big and then not following through ;-)
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05-28-2008, 09:28 AM
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#5
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Recycles dryer sheets
Join Date: Mar 2008
Location: Washington, DC
Posts: 75
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Appropriate that it's his last column. If he really encourages Joe Schmoe to put all his money into "the next big thing" and not diversify, he shouldn't be writing an investment advice column!
I just thought the board would get a kick out of his ideas.
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05-28-2008, 09:43 AM
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#6
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Recycles dryer sheets
Join Date: Jun 2005
Posts: 304
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Put it all in Enron and grow to a fortune !
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05-28-2008, 09:47 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 7,108
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Frankly, in this situation, it is a complement to be an amateur. Amateurs are too busy with the important things in life and know, statistically, a diversified equity portfolio provides more wealth than one managed in this fashion. Just like poker players, a few can do quite well over the years but most loose it all.
__________________
Duck bjorn.
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05-28-2008, 10:15 AM
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#8
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 3,895
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i don't care about being rich, but i don't mind not being poor.
__________________
"off with their heads"~~dr. joseph-ignace guillotin
"life should begin with age and its privileges and accumulations, and end with youth and its capacity to splendidly enjoy such advantages."~~mark twain - letter to edward kimmitt 1901
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05-28-2008, 10:17 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 2,020
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In one sense, the article is spot-on. If you start a business, you don't diversify into starting a hundred small businesses, you pour yourself into that one. If it hits, ala Google or Microsoft, then that's the fastest way to wealth. If it doesn't, well, there's always the next idea.
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05-28-2008, 10:25 AM
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#10
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Moderator Emeritus
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
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At age 59 and counting, I figure I just want my fair share.
I'll stick with diversification.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.
As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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05-28-2008, 10:38 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Apr 2007
Posts: 2,360
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The problem with tip number 2 is not that it's wrong, but that it assumes the majority of investors want to be "rich". Most of us on this board just want enough to be financially independent.
I guess a high-rolling hedge fund manager would be the epitome of a 'professional' investor. They certainly take big gambles on concentrated positions. But they are playing with other people's money, and have a built-in compensation incentive to speculate
FWIW, Warren Buffett certainly prefers a focused portfolio, but has repeatedly recommended that "know-nothing" (i.e., the vast majority of) investors stick to low-cost, diversified index funds.
I like his tip number 3:
Quote:
Lifestyle. They may seem fancy, but just because homes and vacations are expensive doesn't mean they are better. The magic of all things wears off after a while. Buy a new sports car and after a month I'll bet you will find something to complain about. Being smart about how you live trumps ostentation and shows you have class. Go to old-moneyed Greenwich, Conn. and you'll find the richest people driving the most broken-down looking cars. Think smart; don't show off.
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__________________
"To know what you prefer, instead of humbly saying Amen to what the world tells you you ought to prefer, is to have kept your soul alive". Robert Louis Stevenson, An Inland Voyage (1878)
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05-28-2008, 03:03 PM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,317
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Warren Buffet said something like that but made clear that 99.999% of us are amateurs and belong in indexes. I think he would include most managed fund managers among the amateurs.
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Idleness is fatal only to the mediocre -- Albert Camus
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05-28-2008, 03:46 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,808
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That article shows why the Sophisticated Investor column should disappear.
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05-28-2008, 04:01 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2007
Posts: 5,072
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I am an amateur. I use it, and am proud of it... also very well off financially.
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05-28-2008, 05:03 PM
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#15
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Thinks s/he gets paid by the post
Join Date: Apr 2006
Posts: 1,490
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question: how many sophisticated investors read and take advice from the sophisticated investor column?
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05-28-2008, 05:41 PM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,067
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How much risk are early retirees willing to take? Some, but not a whole lot. Diversification is a must at this point of the game. I know I don't want to go back to work.
__________________
Retired 3/31/2007@52
Investing style: Full time wuss.
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05-28-2008, 06:04 PM
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#17
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Thinks s/he gets paid by the post
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,455
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This is one of those articles about "no risk - no gain". A concentrated bet can make you rich or poor, and diversification will provide market (or average) return. I choose the latter.
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May we live in peace and harmony and be free from all human sufferings.
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05-28-2008, 06:32 PM
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#18
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Recycles dryer sheets
Join Date: Jan 2008
Location: Bloomington
Posts: 127
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My brother and SIL put all their money in Worldcom. Ended up selling for $100. Their retirement is on hold. I'll give them credit for not whining though.
I think I'll stick with being an amateur.
__________________
Relax your mind.
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05-28-2008, 07:19 PM
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#19
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Full time employment: Posting here.
Join Date: Jan 2008
Posts: 798
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Is there such a thing as too much diversification? Such as the highly diversified non-correlated portfolios containing every asset under the sun. Are the risks so balanced out that the returns will be lower because of the lower risk?
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05-28-2008, 07:34 PM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Back to Martin Whitman again. He is a very successful investor, but his judgment is no more certain than ours is. He rode a big holding in Ambac (ABK) to above $90- then watched it decline to today's close under $3. All the while saying what a safe and sound investment is was.
So I think some diversification is in order, at least it is for me!
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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