The Diversification Lie

Whenever and wherever investment strategies are the topic of discussion, sure as the sun sets in the West, somebody will open their yap about the need to be diversified, of not having all of your eggs in one basket, of segmenting your portfolio to match your investment style and other such sage advice, all of which serves to increase trading activity, market liquidity, but mostly, the size of your broker's monthly commission check.

Unless you are sufficiently wealthy (in which case, you'd probably be in TIPS or Treasuries or another high-yielding asset class), diversifying your portfolio usually means spreading out your risk over a number of different stocks or a combination of stocks, bonds, mutual funds and money markets. All of this results in a higher transaction rate, good for the financial services industry and bad for you. It's just plain money out of your pocket, and diversification, as has been proven in bear markets and bulls, isn't a safeguard against risk, nor does it help maximize profits. At best, diversified portfolios amplify losses and reduce profitability.

What we'd all like is a couple of dead-nuts winners and no losers. Diversifying, spreading out and trading frequently only reinforces the desire to trade - or, gamble, which is exactly what it always has been and always will be - while virtually guaranteeing mediocre results. The normal result of spreading, if you're lucky, is a couple of winners, a couple of losers and an overall performance that will be somewhere close to the averages. You might as well just buy index funds or play index futures or options, forget everything about charts and fundamentals and timing and just bet one way or the other. Like any other wager, you'll win some and lose some and probably come out a loser, which is how most people doing their own trading end up.

Mediocrity is what keeps brokerages and professionals in business. Sooner or later, all those day-trading wizards burn out because, just like in Las Vegas, they can't beat the house, which on Wall Street is better known as the inside money - the very brokers who use your money to gamble and hedge against. Individual investors surely don't stand a snowball's chance in hell in today's trading environment, when stocks turn on a rumor, phrase or the whim of the inside money, so diversification only accelerates the losing process, all to the great satisfaction of the Fat Cats.

The only way to win in stocks, just like gambling, is to make large, smart moves and make them as infrequently as possible. Buy and hold is still a viable strategy, but the trick is knowing not only what to buy, but when, and when to get out. A single big winner is still the best strategy. All the diversification talk is pure bunk, made for fools who think they're actually "investing."

Get real. Save your money. In a sock. When you've got $100,000, think about how badly you'd feel losing 10 or 20% of it, or more. You'll forget investing and go back to saving. Believe me, I spent years analyzing stocks, markets, investments, the economy and more, and I WON'T PUT A PLUGGED NICKEL INTO STOCKS, mostly because I know the pros still have a huge edge.

Think it over. Do you have 8 to 10 hours a day to plot your moves and act upon them? Do you have other people backing you who will support your trades with trades of their own? Do you have huge sums of money to hedge and cause market runs and momentum shifts? Obviously not.

A case in point is today's rally, yesterday's decline, the rally the day before, the sharp drop the day before that. do you have the stomach for that kind of volatility? Up one minute and down the next? I didn't think so.

Dow 10,144.19, +105.81 (1.05%)
NASDAQ 2,177.41, +29.54 (1.38%)
S&P 500 1,078.47, +10.34 (0.97%)
NYSE Composite 6,898.72, +79.60 (1.17%

Advancing issues beat back decliners, 4874-1598 (3-1); 140 new highs, 65 new lows, still not enough of a spread to call any change in direction. Volume was average.

NYSE Volume 5,165,277,500
NASDAQ Volume 2,149,687,500

Stocks remain in a consolidation phase around Dow 10,000, which could last a few more weeks before a breakdown occurs. Upside potential remains weak due to current economic conditions.

Commodities caught some fire on Thursday, though oil was down 2 cents, to $75.28. Gold added $18.90, to $1,095.20. Silver ended 29 cents higher, at $15.59.

Unless tomorrow is a huge day to the downside, stocks are on track for a winning week, which would end a string of four straight losers. That's a bet worth taking. The only other week stocks finished higher in 2010 was the first week of the year.

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Unlike many blogs, this one is all about money, investing, saving and having enough to live a full and rewarding life.

Most people spend their entire lives worrying about money and never do what it takes to have the money they really need. The middle class, especially in America and Western European countries, has been marginalized by major corporations, governments and a monstrosity of media which keeps the middle class not in the middle, but near the bottom of the social hierarchy.

But the world is changing. Individuals are being empowered to take back control of their lives, get off the 9-5 (or longer) treadmill, turn away debt and act responsibly - something corporations, the media and politicians do not.

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Nothing could be further than the truth. What Govcordia wants is to keep the middle class in a constant struggle, and they've done a great job of it over the years. Rare is the case of people rising from modest means to the top of the heap. What's common is for people to remain working for 45 years at some job or other, accumulate assets - and a boatload of debt - and retire quietly.

If that's how you want to live your life, then stop right here... this is not for you. But, if you want to live a rewarding and meaningful life and reject the ordinary and the commonplace, then get ready for change.

What you can expect from this blog is something out of the ordinary, not the conventional wisdom from Govcordia, but radical thinking from emerging experts in fields of personal finance, politics, ecology and management.

The days of big government, big corporations and big media are coming to an end. Welcome to the world of self-government, home business and alternative media. It all starts here.