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Author: junkman02 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35367  
Subject: Re: Baskets of Eggs Date: 3/24/2009 2:22 PM
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"When the facts change," Keynes is reported to have said, "I change my opinion."

In the initial post that launched this thread, I argued for diversification from two sources: position-sizing and (what would amount to) asset-class selection. With the latter idea in mind, I tore into ETFs to see what I could find that might offer me diversification from what I was already doing, namely, holding a portfolio of individual bonds of any maturity and any credit quality, typically bought at aggressive discounts and typically held to maturity.

In other words, by conventional diversification metrics, I was hugely "under-diversified", because I owned no stocks, no currencies, no commodities, no precious metals, no real estate (as an "investment", as opposed to simply being a place to live), no art, etc., just individual bonds, and certainly not bond funds of any sort. In short, I was being told that I was "under-diversified". I believed so myself, and I want to fix the problem.

However, what I found was this: (1) If the EFT was interesting to me, it was more illiquid than I wanted to risk. (2) If the EFT seemed to offer diversification, the correlation values were more fleeting (this is long post whose details I won't bore with) than I wanted to risk. Therefore, I killed the project. It was an idea that I wanted to explore. But I've backed away from it.

Individual bonds, top-tier to junk, are my investing "niche", and they work for me. So I'm going to leave it to others to solve the diversification problem for themselves, however it best makes sense to them. If sticking with doing what I'm already doing means that I'm a one-trick pony, well, then, I'm a one-trick pony. But the paths that I journey are my own, and I know enough about the game to keep myself out of serious trouble, which, after all, is the supposed, chief purpose of diversification, namely, risk management.

So I'm backing to posting here again, because the bond market is my first and only love.

Charlie
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