Tuesday, 16 June 2015

Diversifying is -

We so often hear the consultant preach the benefit of diversification. Either within a fund, a portfolio of funds or even as a business hedge for large corporates. 'Diversifying' has become almost as much as a 'get out of jail free' excuse as 'for tax reasons' to explain away some pretty appaling investment decisions. There are funds out there that continually out underperform and we all wonder who the heck would invest with them. Well, it's those diversifying. 

Diversifying is - 

Investing in things you don't understand as well as the ones you do.

Investing in things that you hope will directly correlate on either’s upside and inversely correlate on either’s downside.

Never having to say you are sorry.

Investing in things that a 12 year old quant told you would reduce your known risk, whilst your own brain worked out it increases your unknown risks.

Investing in things that your fund administrator tells you that you have to because you aren’t allowed to hold the rest in cash.

An excuse to invest in things that you can use for your personal enjoyment, even if they won’t ever see breakeven. E.g. "darling I've just diversified our pension into a Aston Martin Vanquish and a boys sailing holiday".

A cunning ruse to make sure you don't underperform your benchmark, or overperform it either. At all. Ever.

Buying Greek debt because you own German.

Investing in things that you think reduce the risk on the portfolio as up until now the correlations have worked. But don't. e.g. diversifying your buying of a house on the San Andreas fault and selling Californian earthquake insurance as both been really profitable over last 6 years.

Turning a into b, or rather Alpha into Beta... if you are really lucky.

Investing in a bit of everything, like betting on every horse in the race, but then wondering why you are net down after the event.

An excuse for not really having a clue.

Firing a shot gun from 100 yards at your stock list to make your portfolio picks once you've worked out you don't have a clue. The grouping is a handy measure of diversification to show your consultants. 15 inches is pretty good.

Ordering a load of different curries to share even though there’s only one you like.

An excuse for buying up the dick at the golf course’s company at way over the odds just to fire him.

An excuse to buy the golf club as well so you can ban him too.

An excuse to fire staff.

A way to sound as though you have so much money you don’t know what to do with it all.

A word that has earned your fund consultant more by saying it than you have by applying it.

A rubbish way of telling your spouse you have been unfaithful.

A welshman writing lyrics


theta said...

On diversification check this out:
Here: http://www.ft.com/cms/s/0/7a70ed72-0a00-11e5-a6a8-00144feabdc0.html#axzz3d7C6m1sf
Someone asks what property to buy outright with £200k. Managing director of the Association of Residential Letting Agents responds saying he doesn't recommend buying a single property with the cash because that would provide no diversification, you would be tied to one area only, so too risky. Instead, "his advice would be that those with a pot of cash to invest, look at purchasing several properties and taking out buy-to-let mortgages".
You can't make this stuff up.

Polemic said...

Blimey theta - great example of selling margin and leverage under the name of diversification.

Huge behavioural bias in those advising - diversification needs deals and deals have margins that the middle men can take.

As we all know .. if you want a hedge, go to a garden centre.

Chloe said...

When it comes to diversifying stuff, it reminds me of the biodiversity, which is helpful in improving nutrition and body health, such as D-Alanine. It seems that diversifying can also affect the environment resources as well.