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                                   DIVERSIFICATION LOGIC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At first mention, "diversification" sounds like a reasonable thing to do.  One "expert" that shall remain unnamed suggests that a stock investor's portfolio has three types of risk problems:  1) a specific company, 2) a market sector and 3) the overall market itself.

In commenting on the use of mutual funds as a diversification tool, he further suggests that the general public perceives the management of risk to be the job of the fund manager.  However, the fund's manager would reply with "I am paid to buy stocks."  He assumes that the risk element is administered by the investor as he decides which funds to use.  So in reality, nobody is managing the risk. 

In justifying themselves, the mutual fund manager who "beats the index" upon which his mutual fund is based is "rewarded" with a large bonus, even if his fund lost 25% as compared with the related index that lost 35%.  Now how logical is that?  Is simply saying that the losing fund outperformed its index supposed to be some kind of consolation?  Gimmie a break!

One proposal is to "buy insurance" on your portfolio, just like you do on a car or a house.  To do that, you have to buy longer-range PUT OPTIONS and repeatedly sell shorter-range CALL OPTIONS to reduce the cost of the Puts.   Such a strategy would limit your losses to about 10% and also limit your gains by the same amount or less.  However, a basic fixed annuity beats that approach hands down.

The Better Way:  Rather than diversification, think "concentration."  Look for what's moving, either UP or DOWN and put your money there, using either long or short strategies.  That's what CAMS does.  That's what sets CAMS apart from most other money managers.  That's what produces amazing performance.  Why would you ride a train heading West when you want to go East?  Both individuals and professional advisors do that all the time.  Amazing.  CAMS attempts to find out which train is "moving" and rides in that direction.  It is movement in the desired direction that makes money.  Nothing else works, so why be suckered in by all of the lame excuses proclaimed in the name of "diversification?"

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Text Box: At first mention, "diversification" sounds like a reasonable thing to do.  One "expert" that shall remain unnamed suggests that a stock investor's portfolio has three types of risk problems:  1) a specific company, 2) a market sector and 3) the overall market itself. In commenting on the use of mutual funds as a diversification tool, he further suggests that the general public perceives the management of risk to be the job of the fund manager.  However, the fund's manager would reply with "I am paid to buy stocks."  He assumes that the risk element is administered by the investor as he decides which funds to use.  So in reality, nobody is managing the risk.  In justifying themselves, the mutual fund manager who "beats the index" upon which his mutual fund is based is "rewarded" with a large bonus, even if his fund lost 25% as compared with the related index that lost 35%.  Now how logical is that?  Is simply saying that the losing fund outperformed its index supposed to be some kind of consolation?  Gimmie a break! One proposal is to "buy insurance" on your portfolio, just like you do on a car or a house.  To do that, you have to buy longer-range PUT OPTIONS and repeatedly sell shorter-range CALL OPTIONS to reduce the cost of the Puts.   Such a strategy would limit your losses to about 10% and also limit your gains by the same amount or less.  However, a basic fixed annuity beats that approach hands down. The Better Way:  Rather than diversification, think "concentration."  Look for what's moving, either UP or DOWN and put your money there, using either long or short strategies.  That's what CAMS does.  That's what sets CAMS apart from most other money managers.  That's what produces amazing performance.  Why would you ride a train heading West when you want to go East?  Both individuals and professional advisors do that all the time.  Amazing.  CAMS attempts to find out which train is "moving" and rides in that direction.  It is movement in the desired direction that makes money.  Nothing else works, so why be suckered in by all of the lame excuses proclaimed in the name of "diversification?" [Back to Home Page]