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by bdangubic
762 days ago
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I am not saying anything that you are attempting to dispute here... Your logic is sound and you can get rich doing it. But you won't get wealthy. And getting wealthy does carry higher level of risk, I would think that is common sense. To me diversification goes against all logic because the rule #1 of investing should be that you as a investor KNOW what you are investing in. You can't tell me anyone investing in say S&P 500 has done extensive research on each every of the 500 companies. All they are hoping for is "hey, these are 500 biggest companies in the World, imma just put my chips here and hope for the best - history tells me that is probably safe bet." On the other hand, you can do full-on research into a single or handful of companies and then put your chips there. You can't tell me that putting money in Magnificent-7 say 5 years ago was any riskier than putting money into S&P 500... and yet you could have gotten REALLY wealthy with the former and quite rich with the latter... |
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I largely agree with what you say. However, diversification has degrees, and it doesn’t necessarily mean that you gotta spray and pray across the whole range of S&P500 to be more diversified than the “all-in on a single stock ticker” strategy. Examples:
* All in one single stock ticker - no diversification
* All in a few different stock tickers that are in the same industry sector (that you are knowledgeable about) - diversified businesses, but not diversified across industries
* S&P500 spray and pray - largely diversified
Option #2 is imo the solid middle ground, and it gels perfectly fine with your idea that you gotta know what you invest in. Yes, it is riskier than option #3, because it doesn’t account for the scenario where the entire industry sector experiences a downturn. But it is still diversified, still has the potential to make you wealthy, and is not nearly as risky as option #1 (but also not as capped as option #3).