The idea of diversification is simple. Most investors understand that spreading your bets and avoiding overconcentration is a good idea. But the details behind how to do that can be much more complicated. In this episode, we take a deep dive into diversification. We look at the number of stocks a portfolio needs to be diversified, the importance of factor diversification, whether a portfolio with only stocks and bonds can be considered properly diversified and why rebalancing is an essential part of diversification.
- 00:55 – The different ways to look at diversification
- 03:04 – How many stocks do you need to be diversified?
- 05:01 – Systematic vs. idiosyncratic risk
- 07:23 – The linkage between behavior and diversification
- 10:43 – The importance of factor diversification
- 20:09 – ESG and the importance of understanding what drives stock returns
- 24:53 – Is Justin diversified?
- 29:49 – Can a portfolio with just stocks and bonds be diversified?
- 41:46 – Why rebalancing is essential for diversification
