Lesson 13: Diversification is dumb

LESSON 13: DIVERSIFICATION FOR THE SAKE OF DIVERSIFICATION IS DUMB! We've all heard it, "Diversify! You have to diversify!." That is the most boneheaded idea of the 20th century. Here's a little quote from a guy named Warren Buffett who knows a little about stocks: "Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." What this means is that if you buy good stocks, it doesn't matter if you're diversified. Now, this doesn't mean to buy one stock or throw all your money into one investment either. What it does mean is that you shouldn't be betting against yourself IE: Buy bonds just incase stocks go down and vice versa. All this accomplishes is a guarenteed loss when you have a gain! That's dumb any way you slice it. Diversification is a poor mans way of avoiding risk and probably the worst way. Look at how well mutual funds have done lately. You know why they suck? Because they're diversified! The losers pull down the winners and it makes the overall outcome mediocre. Diversify by buying lots of good investments no matter what they are. Don't diversify by buying opposites!