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To: TFF who wrote (1351)	12/2/1997 9:14:00 PM
From: Morpher	Read Replies (1) \| Respond to of 12617

[Off topic] Irby, you are right if and only if you believe in the efficient market theory. Only in that case diversification makes your returns closer to the index fund. But by judging by your statements like "have ability to position trade successfully" etc. you don't seem to believe that nobody can beat the market. So your statements about diversification causing replication of performance of a general index are simply wrong. If it is possible to consistently beat the market then increasing the number of stocks in a portfolio is doing only one thing: reduce the variance of returns, therefore reducing the risk. It does not reduce your ROI. There are several possible reasons for fund managers (under)performance. An obvious one is that they just can't beat the market! If that's true and they are just blind monkeys then concentrating their portfolio won't help them at all; it will only increase the variance of their returns. If on the other hand they can consistently beat the market (not much evidence here) then the only reason why diversification would hurt their returns would be if they were for example good tech stocks pickers but they were forced to diversify by adding stocks in other categories. This scenario should never hold true for a position trader. I always hold 5+ positions and none of them is there just because I felt some need to diversify. If you can beat the market and you are able to make several good picks, you ROI won't decrease. If you think about it for a second or two it makes perfect sense. You are right, BTW, that if you have a concentrated portfolio then you're chances of having larger returns than funds or a diversified portfolio are greater. That's an absolute truth. Unfortunately, your chances of having smaller returns also equally greater! Your average return, though, will not improve at all. Over the long run it will actually be a bit worse. Hope somebody is still awake :)