Six investors sat down to talk about market risks. They couldn't agree on what the risks actually are. But they all agreed you should diversify away from recent winners.
This is what passes for insight now. A group of professionals paid to have opinions about markets can't identify the same threat. One guy thinks it's inflation. Another thinks it's deflation. The third is worried about geopolitical tensions. The fourth saw a chart that scared him. The fifth read something on Twitter. The sixth just needed to say something to justify being in the article.
But diversification? That they can all get behind. Move your money away from things that went up. Spread it around to things that didn't go up. Revolutionary stuff.
The strategy works like this: You made money on the same seven tech stocks everyone else bought. Now sell those and buy something boring that's been flat for three years. When that stays flat for another three years while the original stocks double again, you'll have successfully diversified yourself into underperformance.
Retail traders will read this and think they're getting actionable intelligence. They'll liquidate their positions in whatever actually made them money. They'll buy an ETF full of companies that manufacture industrial lubricants and companies that make the machines that apply the industrial lubricants. True diversification.
Six months from now, these same six investors will give another interview. They still won't agree on the risks. But they'll definitely agree on something else vague enough to sound smart without meaning anything.
The beautiful part is that diversification can never be wrong because it can never be right. It's just a thing you did with your money. It's the financial equivalent of rearranging your furniture and calling it interior design.
Photo by Marcus Reubenstein on Unsplash
Leave a Comment