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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (61686)	3/12/2002 2:36:25 PM
From: Sam Citron	Read Replies (4) \| Respond to of 70976

OT Strategy: Diversification James Tobin, who won the Nobel Prize in economics in 1981 for his theory that we shouldn't put all our eggs in one basket, died on Monday. online.wsj.com. As smart as Mr. Tobin was, and he was given a gold watch by JP Morgan for having the best academic record in an elite naval officer training program at Columbia University in 1942 designed to turn geniuses into war-winning naval officers in 90 days, minneapolisfed.org, there are several investors who seem to think that Tobin's theory of optimal portfolio diversification is overrated. I am thinking specifically of Cary Salsberg and Jacob Snyder. Cary's entire portfolio of stocks, to the best of my knowledge, consists of only 9 companies, his favorite 8 Member 43164 plus Cisco, all in only 3 segments of the "technology" sector and all 9 highly positively correlated with one another. Not widely understood is that only a small portion of Cary's net worth is invested in these 9 companies and that a significant portion is in "riskless" CDs. Cary's allocation between the cash basket and the stock basket seems to be quite variable and highly dependent on the expected relative yields of each of these baskets. Cary now is experimenting with covered call writing on his favorite stocks, so these covered calls might be considered a third basket. Jacob is another story. He has called diversification "way overrated" Message 17036626 and considers his portfolio to be "very diversified" with stocks and LEAPS in only 6 companies (ibid). Jacob's current profile indicates that his favorite stocks are: QCOM, CMH, NTAP, EMC, CCL, AMAT, TXN. CMH is a modular home builder (short position) and CCL, of course, is the large cruise line, suggesting that at least Dr. Snyder is not entirely technology-centric. If anything, he would probably describe the portfolio as gorilla-centric. Incidentally, Tobin also had a few things to say about human capital and innovation and other assets that normally don't show up on companies' balance sheets, but his Q-ratio research was subsequent to his Nobel prize. I'll save that discussion for another day. Sam