Dislikedwhat are the high liquidity uncorrelated market or instruments according to you guys ?
So, it can be helpful in diversification of portfolio.Ignored
from what I have seen and read, the current financial crisis was as bad as it was because the tools to measure risk and the models that assumed diversification are wrong.
I do not believe one can truly diversify, as a systemic shock will impact all assets classes. In my opinion although I am not a financial expert...one must think of correlation coefficient, and diversify with risk on and risk off environment in mind.
The word diversification (diversify), and expressed by the media and so-called Professionals (making money through commissions), is no different from the same BullSh*t that says, "buy and hold", "negative gearing" or "buy low and sell high".
The true meaning of Diversification is when an asset is
self-sustaining, and in positive gear, then diversifying into another
asset and repeating the process.
To diversify without a self-sustaining asset is like splitting your $1M into
5 different banks "to protect it from losing it through unforeseeable
misfortunes" and NOT realizing that your losing money through more fees
and charges.
The word diversification (diversify), and expressed by the media and so-called Professionals (making money through commissions), is no different from the same BullSh*t that says, "buy and hold", "negative gearing" or "buy low and sell high".
[center][color=DarkRed]The true meaning of Diversification is when an asset is
self-sustaining, and in positive gear, then diversifying into another
asset and repeating the process.
To diversify without a self-sustaining asset is like splitting your $1M into
5 different...
Thanks for your input CrucialPoint, however, I disagree with your notion that buy and hold along with buying low and selling high are BS, and as the saying goes "for traders the market price is always right but for investors the market price is almost never right" holds true in your comment. You seem to be a strong advocate of trading with total disregard for investing, that is fine. Everyone has their perspective and have their way of making money, calling investing through buy and hold and buy low and sell high (value investing) BS however is ill-sighted to say the least as plenty of evidence seems to contradict you.
I do agree on your comments on diversifying into self sustaining asset classes, you wouldn't be really diversifying if you traded/invested differently, would you? As for your point on commissions, could you further elaborate? I have no clue what your talking about and what commissions have to do with diversification.
Split
- #27
- Sep 5, 2012 12:29am Sep 5, 2012 12:29am
- Joined Feb 2008 | Status: Trader | 6,736 Posts
Time hides Nothing
Thanks for your input CrucialPoint, however, I disagree with your notion that buy and hold along with buying low and selling high are BS, and as the saying goes "for traders the market price is always right but for investors the market price is almost never right" holds true in your comment. You seem to be a strong advocate of trading with total disregard for investing, that is fine. Everyone has their perspective and have their way of making money, calling investing through buy and hold and buy low and sell high (value investing) BS however is...
I do agree on your comments on diversifying into self sustaining asset classes, you wouldn't be really diversifying if you traded/invested differently, would you? As for your point on commissions, could you further elaborate? I have no clue what your talking about and what commissions have to do with diversification.
When you are trading shares, stocks, or whatever... by diversifying your holdings, it means more fees, more transaction cost, charges for the services. I was replying in the other thread regarding "legally re-wording political/business jargon". Do you really believe when a broker tells you they take "no commissions" yet you have to pay the spread? When a bank tells you "no additional cost" yet you pay "exit fees"? Hedge Funds... I better stop myself here.
Same sh*t, just worded differently
...I believe the financial world will never regain its dignity until this systematic risk can be diversified. It's gotten to the point where the livelihoods of the world are put in the hands of imbecile politicians who are just trying to get elected and get their own. People in the know can take advantage for personal gain and sway policies in their favor... blah blah blah.
They don't need to regain dignity... they need more profits.
- #30
- Edited 1:25am Sep 5, 2012 12:55am | Edited 1:25am
- Joined Feb 2008 | Status: Trader | 6,736 Posts
The financial world don't give a sh*t about dignity.
They don't need to regain dignity... they need more profits.
No profit in morality...
Time hides Nothing
I barely scratched the surface with this point of view. It goes far deeper than what you just replied. But that is another story.
Financial experts, Financial advisers, Financial brokers, company front marketers to provide information and educational services, trading brokers, etc... the list goes on. They are paid through commissions. Any Financial expert will inform for you to diversify and tell you so it will protect your assets... No, the expert will tell you that so you pay to get the paper-works done. Their best interest is not...
ok now I get you. As for your point that you barely touched the surface on, everyone is free to believe in what ever they want. There's no one right way to make money, there are plenty of ways, and what doesn't work for either of us might work for some one else. As for commissions, its part of the business, they the brokers are in it for the commissions and I am in it to realize a gain on my positions. Anyways, these are off-topics that weren't supposed to be for this thread.
Excellent discussion CrucialPoint and Split. Ideally you would want the investments you diversify into to have the ability to all gain over a period of time, while not having the ability of all losing simultaneously should market factors change. This is a key ingredient to making diversification work. It's almost like finding an off balance arbitrage opportunity (from a macro perspective).
thanks for your comments.
And that is the problem. Unfortunately and increasingly so with the globalized world we now live in., Systematic risk is the only risk in which you cannot diversify against. The only way is to minimize the damage, in the event that the system crashes in the way of investments which offer less risk.
In doing so your return decreases. When our money is put in the hands of fund managers and wanna be billionaires who have free will to gamble with it it is not so hard to choose riskier investments in the form of shares. No ones going to want to invest...
- #36
- Sep 5, 2012 2:02am Sep 5, 2012 2:02am
- Joined Mar 2009 | Status: Trader | 6,418 Posts
I totally agree with your post 2+2+4ex
How to diversify effectively is a subject in itself and has more than one solution. Diversifying across asset types and investment strategies is the standard approach though you are still subject to a shock to the entire financial system. This is what tends to catch out the major banks & hedge runs when they foul up royally every now and again, their risk and correlation models stop being valid as the world stops acting "normally" for a period.
Separately, all investing/trading carries transaction costs, it is unavoidable and not an extra...
- #38
- Last Post: Sep 5, 2012 5:38am Sep 5, 2012 5:38am
Below are some of the responses in my perception that sum up the common sentiment of diversifications.
Don't mind my little input from a novice, I will be responding in my own novice point of sentiment.
I personally felt, for diversification, in reducing risk, it does not necessary reduce returns, it may still generate higher revenue than those high risk assets over a longer term period.
It have to depend on the time frame you expect your investments work out, that included other elements not elaborated.
I think some of us, still holding a bias perception towards diversifications. We shouldn't be looking at risk/returns first, as our purpose is to diversify.
First, I think when we want to diversify, we need to identify an investment transport we are familiar with. That basically reduce some of our risk.
These are what I do with my savings within my limited knowledge on the market the past years:
1. I only diversify in my local stock market.
2. I invest stock with higher volume, and I select those I can afford.
3. I avoid penny stock.
4. I do think of financial crisis, so I choose some stocks that would not be affected greatly in those times.
Eg, Not every company make a loss during bad times. When we are poor and hit by crisis, we still need to brush our teeth, bath ourself, we need food, we still need buses, taxi, cars for transport, or paying electricity or utilities bills. They still squeeze our money out of those times. These are those stocks I look at, and especially those with strong government ties which the percentage of them disappearing with my money the next day is near to 0.
I avoid transaction costs and minimizing costs by playing long term. I treat it totally like my bank deposit. I scale out during good times for profits, and scale in during bad times to increase position size. As well as I scale out when I start making a loss, and re-analyse the present situations in diversifying.
This is a key ingredient to making diversification work. It's almost like finding an off balance arbitrage opportunity (from a macro perspective).
Systematic risk is the only risk in which you cannot diversify against. The only way is to minimize the damage, in the event that the system crashes in the way of investments which offer less risk.
In doing so your return decreases.
How to diversify effectively is a subject in itself and has more than one solution. Diversifying across asset types and investment strategies is the standard approach though you are still subject to a shock to the entire financial system.
Separately, all investing/trading carries transaction costs, it is unavoidable and not an extra cost involved in diversification. Sure, some markets operate with somewhat higher costs than others and this is a practical limitation of achieving theoretically perfect diversification.
Don't mind my little input from a novice, I will be responding in my own novice point of sentiment.
I personally felt, for diversification, in reducing risk, it does not necessary reduce returns, it may still generate higher revenue than those high risk assets over a longer term period.
It have to depend on the time frame you expect your investments work out, that included other elements not elaborated.
I think some of us, still holding a bias perception towards diversifications. We shouldn't be looking at risk/returns first, as our purpose is to diversify.
First, I think when we want to diversify, we need to identify an investment transport we are familiar with. That basically reduce some of our risk.
These are what I do with my savings within my limited knowledge on the market the past years:
1. I only diversify in my local stock market.
2. I invest stock with higher volume, and I select those I can afford.
3. I avoid penny stock.
4. I do think of financial crisis, so I choose some stocks that would not be affected greatly in those times.
Eg, Not every company make a loss during bad times. When we are poor and hit by crisis, we still need to brush our teeth, bath ourself, we need food, we still need buses, taxi, cars for transport, or paying electricity or utilities bills. They still squeeze our money out of those times. These are those stocks I look at, and especially those with strong government ties which the percentage of them disappearing with my money the next day is near to 0.
I avoid transaction costs and minimizing costs by playing long term. I treat it totally like my bank deposit. I scale out during good times for profits, and scale in during bad times to increase position size. As well as I scale out when I start making a loss, and re-analyse the present situations in diversifying.
The only winner is the one who survive the longest...