Let’s cut to the heart of how risk and uncertainty impact diversification
Diversification is inadequate as a risk management technique and too primitive for the new environment of volatility and uncertainty.
Part 1: The Field of Play
Active investing is the only way to superior returns
A small percent change in total returns achieved both before and after retirement can make a huge difference in your standard of living after retirement
The rise of passive investing and opportunities for active investors
The rise of passive investing and systematic investing may lead to greater stock market inefficiency. It will have little negative impact on active investors.
The joy of higher return with no more risk
If we calculate the value of a common stock to be only slightly higher than its price, we’re not interested in buying
Many investors just don’t understand the risk/reward trade-off
Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain.
The great investors and extreme volatility
Be prepared financially and psychologically to live through a series of bull markets and bear markets because in the long run common stock will pay off enormously and the next bull market will carry prices far higher than this one
The conventional view of market efficiency is badly mistaken
Prices in the stock market are never a reliable guide to the fair value of a stock.
Thoughts on beating the market
No investment decision should ever be motivated by trying to beat the market. The moment this impulse creeps in, the investor is liable to risk seeking behavior.