I happen to like learning about macroeconomics and business analysis. So, not surprisingly, I have a different perspective than passive indexers on asset allocation. Conventionally, holding different asset classes is advised because it may do one of two things. It may reduce the overall volatility of your asset portfolio. Or, it may spread the risk profile of your total asset holdings, if each asset class performs well in a different environment relative to the others. At best, that provides mediocre returns over the long term; at worst, that ensures exposure to bearish market trends over the near term. In contrast, I suggest holding assets that minimize household operating expenses and/or that are participating in bullish primary trends.

By way of example, owning your house insulates you from the rental increases in an inflationary environment; also, whether the price of the house increases or decreases, what do you care? Participating in commodity-related equities ensures exposure to a segment of the equity market that is experiencing a bullish primary trend. Avoiding general equity market plays and bond plays when both are over-valued ensures little or no exposure to the bearish primary trends in the general equity market and the bond market.

As to Mr. Kiyosaki, he has ably leveraged the intellectual property rights in his books after their adoption by Amway. Nothing more, nothing less. To my mind, he is not a subject matter expert in finance. If retail investors like ourselves want to learn about finance, we need only turn to true subject matter experts like Mr. Buffett and John Bogle of Vanguard.

Suresh
http://www.incometrap.com

But, you look at some very successful investors over the course of the last century, and you will find, that yes they are less diversified in the companies they invest in. But what makes them the most successful, even if they are diversified, is they made the big investments in the companies that went up the most. In other words, they knew where to put the money, and put the most money in the greatest reward.

Receiving a degree in finance, I was schooled in diversification and shown all these formulas and correlations and what not, but what always puzzled me, was how are you supposed to make money if when x is down, y is up. you’re hoping that x and y are up together at some point so that you can record a profit.

I personally feel that if you do your due diligence, ask the right questions, and more importantly, can hold during a downturn if the fundamentals remain, you will be successful. What happens is usually when a stock price goes down, people will doubt their ability to analyze a company and sell, instead of buying at a better price.

I like your blog, I’m going to post a link to you from my site.

Gualberto Diaz
gualberto.diaz@gmail.com
http://money.gmoneynyc.com

Here’s what I got from the article: I’m not Warren Buffet. I have no system. I don’t have enough capital to test a system, if I had one. I will diversify, but that doesn’t mean I will do it passively by letting a financial/mutual fund advisor do it for me. I’m a big girl and can invest in etfs on my own. If I want to play the focus game, I do it like a scientist. I use stock simulators to test theories and statistical programs to refine theories.

http://www.wealthjunkie.com/2005/10/03/diversifying-is-for-losers/

you have a great little site by the way

What I am trying to say is that individuals , who are knowledgeable , have several distinct advantages over mutual funds,….flexibilty and costs and this would allow them to use focused invested to their advantage…….Diversification by it’s very nature reduces potential return, the theory being you also reduce risk…My thoughts are that you can reduce risk through position sizing and stop losses without impacting potential return to the same extent

I’m rambling because I just had coffee and am trying to burn off some energy I hope this makes sense.

However, Mr. Kiyosaki is no Warren Buffett, he’s a motivational speaker. Many of the people who (unfortunately) listen to him are not Warren Buffett either… they’re teachers, pilots, etc.

The diversification should reflect the risk in your portfolio. If you know the companies have long-term value (ie – Warren Buffett) and are not afraid of short-term fluctuations in value, then you afford less diversification.