Chaz,
The whole point of diversification is that it is an acknowledgement that we might not be right about a particular stock and/or that we might not spot a changed fundamental before the market reacts and takes huge amounts of our assets away. Some of the most astute investors I know got caught with their pants down when Iomega tanked in 1996. The experience left an indelible impression on me.
The points you make are valid, but they are only valid for people who think as you do and have the emotions you do. The points I make are similarly valid only for me and those like me.
Emotion? Ya gotta be kidding! Merlin is discussing emotion in context of the stock market?
You betcha.
No one -- and I mean no one! -- should ever lose sleep at night because of their investments. Just the opposite, their investments should help them sleep better. If diversification does that for a person, it's the right thing to do.
Now, back to your ideas.
1) Selling your winner on a weakness with the intention of not buying it back in favor of an alternative is not the russian army approach....outside of the GG.
You're right that it's not the Russian Army approach, but the fact is that you won't find this discussed anywhere in the manual. The manual only discusses how to maximize the returns of a particular gorilla game. It doesn't discuss what to do when a particular gorilla game becomes too much of a person's total portfolio.
My impression is that the authors respect the common sense of individual investors to know that its appropriate to move money out of one gorilla game and into another when doing so makes a person sleep better. Especially considering that the authors made no attempt to quantify the CAP or the GAP as a means of seeing when the brick wall will be hit, it's difficult to refute that lessening one's risk by taking money off a gorilla's table and moving to another gorilla's table will be appropriate for those whose tolerance for risk is less than 100% tolerance.
2)If you have an attractive alternative to the Q-type, why were you waiting?
Because I want Qualcomm to run as far and as long as my tolerance for risk allows me. Right now it is well within my and my wifee's tolerance for risk. (By the way, it is very important to recognize that some of us have family members hanging over our shoulder whose tolerance for risk might be less than ours. That's not the case for me but it might be for others.)
3)If the logic of your plan is to eliminate volatility, why not just collect some bank cd's and be done with it. Isn't that the logical conclusion you would have to reach?
It's not logical for me to come to that conclusion because it would produce fewer profits. What you are suggesting is appropriate only for someone who tolerates absolutely no risk. The person who would buy CDs (my mother, as an example) wants the guarantee that the investment will keep up with inflation but wants not a hint of any risk at trying to beat inflation. That's not my profile.
4)My Computer Encyclopedia defines "diworsification" as "sucker hole."
LOL!!!!!!!!!
However, there are different kinds of sucker holes. My particular sucker hole is doubling the S&P 500 for 10 years. There are some out there who are probably tripling, quadrupling it or whatever and you can bet your last dollar that my hat is off to them. But with the responsibility I have taken on in the way of ensuring family members' and non-family members' protection, the risk/reward scenario I've accepted to double the S&P 500 over such a long time is right for me.
And when I say that it's right for me, that's why I'll always maintain that there is a rightful place for emotion in determining an investment strategy.
--Mike Buckley |
