Replies to post #8865 on A.I.M. Users Bulletin Board (AIMUSERS)

[Rien]

Hi Mark, my previous post was a "cheap shot" in the sense that it oversimplyfied things. But in essense I do agree with it. To me, diversification is just too difficult to be used as a risk reducing mechanism. I rather use money management methods.

If you're trying to get rich, you still need to diversify or else you're exposing yourself to risks that, in all probability, will cause you to lose money over the long-term and inhibit you from getting rich.

I take it that you mean to say that once one has build a little wealth, this wealth needs to be protected. I guess that depends on the personal risk tolerance. For example when starting with $10,000 or even $100,000 it is next to impossible to make it to a million when one uses diversification. With those kinds of capital, diversification will prevent you from reaching a million IMHO.

[Toofuzzy]

Hi Mark Re Diversification

you wrote:

>>The only time I would agree with not diversifying is if someone is starting out and doesn't have enough investment funds to properly diversify. At that point it doesn't make much sense to diversify because the commissions would become a significant expense. In that case you invest your funds in a good stock and hope for the best (or invest in a good index fund, but that's another story).<<

Like you I agree that diversification is desireable (other than buying a stock that will go up TOMORROW... yesterday)

For someone just starting out, who doesn't have a lot of money but will have more to invest over time, it is possible to use TIME to diversify.

Buy one stock or fund per year and after a few years they would be diversified. Personally I like "Exchanged Traded Funds" and the offerings by I-shares in particular. Buying funds eliminates "company risk" and you can use the funds to either diversify by industry or style (large cap, small cap etc)

Toofuzzy

[Undertakr]

On diversification...

Diversification is really just another way of saying lowering risk. It reminded me of an interesting story that I heard a horse gambler say on the radio.

He was asked what his system was and he said it was very simple. In every race he bets he bets the favorite horse to SHOW. Not to win, not to place, but to show. The risk of it coming in the top 3 is so low that he can consistantly win. Less money, of course, but because he's so consistant and doesn't lose very often, he can build up more money over a long period of time rather than risking it all to win, even on a horse that is the favorite.

I thought that was a very interesting way of looking at things. Furthering this though, there's a guy on the radio now adays named Phil something....anywayz, it's www.philsgang.com.

His philosophy is to make 1% per month. 2% is a huge win for him. If he's up 1 or 2% he just sells, takes the money and buys something else. His goal is to make 12-24% annually by making 1-2% monthly. Anything above that is extra. I thought that was an interesting way of doing things.

- Takr