Comments on: Does diversification really suck? http://7million7years.com/2008/07/15/does-diversification-really-suck/ How to make 7 million in 7 years ... Tue, 16 Mar 2010 04:34:00 -0700 http://wordpress.org/?v=2.9.2 hourly 1 By: AJC http://7million7years.com/2008/07/15/does-diversification-really-suck/comment-page-1/#comment-1445 AJC Thu, 17 Jul 2008 03:27:21 +0000 http://7million7years.wordpress.com/?p=241#comment-1445 @ Andrew - 'on average' I would have to agree with you ... but, fortunes have been made in all three. @ Andrew – ‘on average’ I would have to agree with you … but, fortunes have been made in all three.

]]> By: Andrew http://7million7years.com/2008/07/15/does-diversification-really-suck/comment-page-1/#comment-1444 Andrew Wed, 16 Jul 2008 22:44:38 +0000 http://7million7years.wordpress.com/?p=241#comment-1444 @AJC I agree though I would say that on average success in real estate or a business will result in greater wealth creation than success in the markets. Unless of course you are managing money. @AJC I agree though I would say that on average success in real estate or a business will result in greater wealth creation than success in the markets. Unless of course you are managing money.

]]> By: AJC http://7million7years.com/2008/07/15/does-diversification-really-suck/comment-page-1/#comment-1443 AJC Wed, 16 Jul 2008 16:39:59 +0000 http://7million7years.wordpress.com/?p=241#comment-1443 @ Andrew - I would say "similar to the difficulty of starting your own business" because you are right: only a few are destined for financial success - some will do it with business, others with stock / real-estate / or [in rare cases] some combination of all three. The motivations are similar, just the mechanics/mindset varies. @ Josh - Thus the choice is indeed simple :) @ Andrew – I would say “similar to the difficulty of starting your own business” because you are right: only a few are destined for financial success – some will do it with business, others with stock / real-estate / or [in rare cases] some combination of all three. The motivations are similar, just the mechanics/mindset varies.

@ Josh – Thus the choice is indeed simple :)

]]> By: Joshua H. http://7million7years.com/2008/07/15/does-diversification-really-suck/comment-page-1/#comment-1442 Joshua H. Wed, 16 Jul 2008 04:31:21 +0000 http://7million7years.wordpress.com/?p=241#comment-1442 The real question is "will diversification achieve the goal to become rich?" the answer is simply "no", at least not at an age one can enjoy it. Thus the choice is simple. The real question is “will diversification achieve the goal to become rich?” the answer is simply “no”, at least not at an age one can enjoy it.
Thus the choice is simple.

]]> By: Andrew http://7million7years.com/2008/07/15/does-diversification-really-suck/comment-page-1/#comment-1441 Andrew Wed, 16 Jul 2008 03:30:23 +0000 http://7million7years.wordpress.com/?p=241#comment-1441 I fully agree with Ramit on the importance of thinking from an entrepreneurial perspective however I do disagree with him in regards to his theory on investments. The math he refers to is most likely the capital asset pricing model and/or modern portfolio theory both of which highlight the advantages of diversifying systematic or market wide risk. These theories in a sense advocate for index funds because of their maximum diversification and low cost structure. The reason that so many mutual funds fail to beat the returns of index funds is because of the similarity of the products and the high mutual fund fees. For example if a mutual fund manager holds 100 stocks it is going to be pretty hard for him to make up for the 2% he is charging you in fees because his basket of stocks is such a large proportion of any index. But for an individual who can concentrate on a few companies with no intention of managing systematic risk but rather focusing on the company specific or idiosyncratic risk (like Warren Buffet does) then they may very will be able to beat the market long term, albeit with significantly more variance. Can most people do it, no. But it is no more difficult than starting your own successful company. I fully agree with Ramit on the importance of thinking from an entrepreneurial perspective however I do disagree with him in regards to his theory on investments. The math he refers to is most likely the capital asset pricing model and/or modern portfolio theory both of which highlight the advantages of diversifying systematic or market wide risk. These theories in a sense advocate for index funds because of their maximum diversification and low cost structure. The reason that so many mutual funds fail to beat the returns of index funds is because of the similarity of the products and the high mutual fund fees. For example if a mutual fund manager holds 100 stocks it is going to be pretty hard for him to make up for the 2% he is charging you in fees because his basket of stocks is such a large proportion of any index. But for an individual who can concentrate on a few companies with no intention of managing systematic risk but rather focusing on the company specific or idiosyncratic risk (like Warren Buffet does) then they may very will be able to beat the market long term, albeit with significantly more variance.

Can most people do it, no. But it is no more difficult than starting your own successful company.

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