Diversification can apply in various areas of life. The most common area you hear it in is finance, where everyone from Jim Cramer (Are You Diversified?) and all financial analysts insist that you diversify and buy a wide range of investments to mitigate the risk and keep a steady portfolio. But is diversification really the best answer or is it one of those aforementioned pyramid schemes in life to get people to buy a bunch of different stocks thus increasing the commission fees for stock brokers like ETrade or any other exchange website? I sometimes get embarrassed as an attorney or finance major because theoretically I should know the answer to this. Sure, the theory behind it is sound: you reduce risk because if one industry goes totally out of commission or one company unexpectedly declares bankruptcy or something, you're not totally screwed by that one event happening, the easiest iteration of "putting your eggs in one basket." But what if that egg is a really nice, solid, unbreakable egg? The last year or so of investing/ trading in the stock market has made me a skeptic of diversification, illustrated by the rise of just 2 "FANG" stocks, Netflix and Amazon. The last year or so I've owned varying amounts of Netflix and Amazon as both have risen to unparalleled highs, Amazon from 995 to 1500 in about half a year (50%!) and Netflix even more astoundingly from 194 to 294 (also about 50%) in just 2 and a half months. During those times I also owned other stocks like TRVG (big mistake!), WMT (doing well until it got hit by Amazon!) and a mutual fund (group of stocks pooled together, what the experts recommend you do!) which I barely made anything on, if not took a loss. Throughout these months I often wondered, "Why don't I just put all my money in Netflix and Amazon?" (the opposite of what the experts say to do as they're both in the same sector, both listed on the Nasdaq, both are in video streaming and a lot of the same industries). The world is becoming digital, and we're more and more relying on computers and online buying for our everyday things, and Netflix and Amazon provide that. If they fall, that means the world has changed in some fundamental way, and likely the other stocks that you can buy would also be in jeopardy, probably more so. It's really hard for me to justify, and increasingly hard to resist, just putting money in those companies, except for the fact that they're already so expensive already (theoretically you want to sell high, buy low). But time and time again I wake up every morning to check stocks and NFLX and AMZN are up big, other stocks are dragging along. Mutual funds just follow the market direction, AMZN and NFLX outperform the market! I don't know why I didn't understand this just a few short months ago and messed around with other investments. I sometimes think about how much money I missed out on not investing in those companies and get sick.
Diversification is also an issue in life and finding one's next career. Should you put all your eggs in one basket and go fully into computer science, for example? (the new hot career in a newly digital world) or learn a bunch of different things, hoping that one of them will pan out. This is a daily issue for me, whether to spend more of my time applying to jobs, researching reddit, teaching myself a little computer science, learning more Korean/Japanese, checking out the stock market (I've had mixed results), or just focus on ONE of these things, knock it down, and then move on after I've finished. That's actually my mindset and why I get irritable about being late and trying to multi-task: I want to accomplish too many things and have too many side projects, I get overcommited trying to diversify my portfolio of life activities, when actually becoming really good at just ONE thing might be more effective. It's the curse of "jack of all trades, master of none." (by the way, good Aziz Ansari show). Diversification is not always a good thing even in general life.
It IS a good thing in daily nutrition! Eat plenty of veggies and spread out your diet and rotation!
Fantasize on,
Robert Yan
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