Buffett on Diversification

Not a day goes by that I don’t hear a talking head on CNBC talking about a well diversified portfolio.  Diversification must be a required course in money management school.  Here is a commonly accepted definition from the U.S. Securities and Exchange Commission’s web site,

One of way of diversifying your investments within an asset category is to identify and invest in a wide range of companies and industry sectors. But the stock portion of your investment portfolio won’t be diversified, for example, if you only invest in only four or five individual stocks. You’ll need at least a dozen carefully selected individual stocks to be truly diversified.

I have never been a big fan of diversification.  Most people end up di-worse-si-fying their portfolios by adding stocks in unfamiliar sectors for the sake of diversification.  It is a little easier with the advent of ETFs.  Now, one can simply choose an ETF for additional exposure as opposed to trying to become a good stock picker in many different sectors.

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Time & Money Review 11/16/07 – Gold Investors Reminded of the Laws of Gravity

Apparently, the laws of gravity still apply to gold.  Over the past 4 1/2 months, gold has gone vertical tacking 30% onto its June low.  Before Gold investors could finish rewriting their new science books, they were treated to not one but two $30 down days.  Damaged for the week totaled 5.7%.  

Gold investors received a double whammy as they often invest in silver as well.  Silver fell 6.6% for the week.  How about a triple?  Gold equities as measured by the XAU Gold index sank 7.5% for the week.  That is just taking a joke too far.

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Stock Market: Put a MACD Crossover on your Holiday Shopping List

In late February, the Shanghai stock market reminded us how inter-related the world’s markets are when its 9% plunge reverberated around the world and concluded with the DOW closing down 400 points.  The market recovery started once all three major market indexes (DOW, S&P 500 and NASDAQ) flirted with their 200 Day EMA. 

The July/August credit induced correction ended in the same fashion.  In that case the DOW was stubborn.  It would take it an additional 14 days before it followed the S&P 500 below the dreaded 200 Day EMA.

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Time & Money Review 11/09/07 – Technology Stocks Taken to the Woodshed

The last bastion of strength, technology, was taken to the woodshed as the NASDAQ lost 6.5% last week.  Selling was initiated when Cisco Systems (CSCO) reported inline revenue and earnings, but weakening sales to US financial institutions.  Cisco’s strength in its other end markets was ignored as fear that subprime slime has infected the non-financials made the headlines.  Before Cisco’s report, technology was hoped to be immune to the slime.  Did the market over react?  Probably, but fear often trumps fundamentals.

The DOW joined the pity party posting its worst 3-day loss in 5 years.  It is off nearly 8% from its record high set on October 9.  The S&P 500 was down 3.7% for the week.

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Time & Money Review 11/02/07 – Commodities Bubbling

There is a simple strategy that is working now:  If you drop it on your foot and it hurts- buy it!  Don’t believe me – drop a barrel of oil on your foot.  Say good-bye to your foot, but if you own a few barrels at $95 each it would soothe the pain.  A pound of cooper at $3.40 hurts, but not as much as it did at 4 bucks.  A bushel of wheat or corn – hurts.  An ounce of gold wouldn’t hurt too badly, but most wouldn’t know where to buy a Gold Eagle anyway.  Just in case you haven’t heard one of those will set you back 800 smackers.

With commodities making multi-year and in some cases all-time highs, the cries of bubbles are getting louder and louder.  Interestingly, these same pronouncers missed the internet and real estate bubbles.  I suggest that you ignore the bubble predictors – buy yourself a pair of steel-toed boots and back up the truck.  

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