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Let’s Diversify

October 10, 2014

Time to laugh – Happy Friday

 

Is diversification a good idea, especially on an empty stomach?  Is there a right or wrong way to diversify?  Plato wrestled with this very question centuries ago.  He was also wrestling with a female student so he never found an answer.  Diversification, as most investors know, means putting your eggs in different baskets. Some prefer paper bags, but that won’t protect the fragile shells.  This is why some investors lose money and eat scrambled eggs.

Position

To understand the principles of diversification, one must first understand position.  Position is where you stand at this moment.  Once this moment passes and you change position, then you must either get back to that same position or stick with the new one.  This is not easy, especially on a moving train or after a liquid lunch.

Shift

Changing position too often may result in shift, a condition whereby the earth no longer rotates on its axis and some people fall off.  Copernicus theorized that shift led to marital problems. He was drinking at the time so it’s not the best theory to hang your hat on.

Boodle

Let’s follow the strategy of an investor whose portfolio may be strikingly similar to your own.  We say strikingly because it sounds good.  Jim Boodle (not his real name, thanks goodness, right Jim?) is a thirty-something professional, although he prefers to keep his profession anonymous, fearing his boss will find out and laugh.  Jim spends his time with his wife and their three lovely children in their Long Island home (not his real home, although Jim wishes he could afford a house on Long Island, or any island, for that matter).

Investment goal

Jim’s portfolio consists of 35 % growth stocks, 25% value stocks, 18% chicken stock, and 11.5 % diced celery.  The other 10.5% is tied up in lottery tickets.  Jim feels his portfolio is out of balance with his investment goal, which is to not lose money.  That’s just too bad, Jim.

New Jeans

If Jim wanted to diversify, we’d suggest eating more grains and less soup.  He might also try a hobby. Of course, diversification is a personal choice not to be taken lightly, especially if you’re debt-heavy and can’t fit into those new jeans.

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