“Many people believe that diversification beyond 10 or 20 securities is superfluous despite clear research indicating that the opposite is in fact the case,” says an article in the July issue of the AAII Journal. The article defines different types risk (including firm risk, industry risk and market risk), then cites past research findings and a “history of erroneous reasoning regarding adequate portfolio size.” It outlines the findings of an AAII study to “address the… Read More
Diversification in a portfolio is a good thing, but only up to a point. This according to a recent article in The Wall Street Journal. With the number of options for mutual funds and ETFs “exploding,” the article says, ‘investors might be tempted to purchase more funds.” It argues, however, that they can assemble a diversified portfolio with fewer than five and, “for plenty of people, just one will do, some financial advisers and analysts say,”… Read More
Strong long-term performance has made the Yale University endowment fund—with a mere 4% weighting in U.S. stocks and heavy allocations to alternative investments– the widely accepted diversification model, according to a recent article in Barron’s. In the last ten years, however, the approach hasn’t worked so well. The fund has “lagged the U.S. equity market amid one of the great bull runs in history,” the article says, adding that a buy-and-hold investor in the S&P… Read More
Recent market volatility notwithstanding, 2016 has been a “relatively good” investing year. This according to Zachary Karabell, head of global strategy at Envestnet, in an article for Barron’s. His opinion, however, is based on performance of a diversified portfolios as opposed to “esoteric” strategies such as “those of many hedge funds.” The performance of assets this year, he writes, “should be a sign that markets are stable and performing decently, rather than a harbinger of… Read More
The value of long term asset diversification, sometimes known as “the only free lunch on Wall Street” is discussed in a recent MarketWatch article offering “Five Steps to Beating the Market.” “Stock investors typically regard ‘the market’ as essentially the Standard and Poor’s 500 Index of large U.S. growth stocks.” The article tracks and summarizes financial performance records since 1928 for large-cap blend the (S&P 500), large-cap value, small-cap blend, small-cap value stocks and a… Read More
While many mutual fund managers have hundreds of stocks in their portfolios as a way to diversify away stock specific risk, James K. Glassman says you can get nearly the same diversification benefit with many, many fewer holdings.
How many stocks do need to have in a portfolio to maximize returns and still limit risk? OSAM’s Patrick O’Shaughnessy recently looked at that question, and his findings may surprise you.
In his bi-weekly Hot List newsletter, Validea CEO John Reese offers his take on the markets and investment strategy. In the latest issue, John looks at the issue of diversification and the performance of different-sized portfolios that he runs on Validea.com. Excerpted from the May 11, 2012 issue of the Validea Hot List newsletter No one — not Warren Buffett or Peter Lynch or David Tepper — is right on every single stock pick. And… Read More
How many stocks should an investor own in order to diversify away stock-specific risk? Some interesting data shows that it may be fewer than you think. The data comes from hedge fund guru Joel Greenblatt’s book, You Can Be A Stock Market Genius, and was highlighted by top value investor Whitney Tilson a few years back (and recently reprinted on The Motley Fool website). According to Greenblatt’s book, the risk-reduction benefits of adding more stocks to… Read More
Marc Faber of the Gloom, Boom & Doom Report thinks it will be very hard for stocks to eclipse their 2011 highs anytime soon, but he says he still would favor stocks over Treasury bonds. Overall, Faber says in an interview with Bloomberg, investors who have a long-term time horizon should stay diversified, owning some bonds, some cash, some gold, some equities, and some real estate. [youtube=http://www.youtube.com/watch?v=KMSW_VxvwhU]