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|Subject: Re: Asset Allocation||Date: 2/17/2014 4:45 PM|
|Author: zol||Number: 74286 of 76095|
I'm trying to figure out if this is "tongue in cheek."
I believe joelxwil is talking about two concepts:
(1) Momentum investing - "You need to be in those assets that are moving up and out of those that are moving down." - Mebane Faber published a paper in 2006 with a follow-up in 2013 describing how to evaluate different asset classes and invest in the ones that are more likely to outperform going forward based on their recent performance. The 2013 paper (Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461 ) shows how the strategy worked out since it was originally published. This strategy is followed in the Mechanical Investing board under QTAA - http://boards.fool.com/qtaa-013114-31095614.aspx
(2) Deworsification - "The idea that you should be in a little bit of everything is just really stupid." - The concept here is that spreading your funds too thin will not improve returns. A 50% increase in one of your holdings will make more impact if you only have 5 holdings vs 100, for example. This article (Link: http://news.fredericksburg.com/businessbrowser/2010/08/10/th... ) talks about a study of managed funds. The study found that managers willing to concentrate their holdings and "bet big on their highest-conviction ideas" outperform the stock market. They quoted a few famous investors regarding this concept:
"This brings to mind a famous saying of Warren Buffett: “Diversification is protection against ignorance.” Star manager Peter Lynch has referred to diversification as “deworsification,” and Buffett’s partner Charlie Munger has said that “wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.”"
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