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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (13357)11/26/2001 11:09:04 AM
From: Bob Rudd  Read Replies (2) of 78473
 
Paul: Thank you for the retrospective - great topic. Here I respond to diversification [without reading other, prior replies] Link to Glassman article: washingtonpost.com
When Glassman writes "Peter Lynch, who was probably the best mutual fund manager of the 20th century, calls spreading yourself too thin "diworseification."
I beleive he misquotes Lynch whose reference to "diworseification" was a negative take on companies buying other companies in unrelated businesses and paying a premium to do so. Lynch favors portfolio diversification for individual investors, as, I suspect, does Buffett.
The Focus Twenty fund comments hit at a vulnerability we all have...tending to concentrate in sectors we know, or where we have an edge. This is really a good thing as long as some method is used to spread risk...as in mixing some funds with stock holdings...and particularly spreading among asset classes as well as stock sectors.
Personally I've often noted Paul's comments on broad diversification especially with microcaps. I've made 2 concentrated bets, but still less than 3% net after tax exposure and both went badly...one has comeback nicely - 100+% net gain and the other is yet to play out fully, but will probably end well into the loss column. Key lesson: It's really tough for an outside investor to really know what's going on inside a company.
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