Dream of Diversification

Hello, and happy Wednesday.

Congrats to those who could actually get tickets to Dune this weekend - you must plan ahead and I’m proud of you for that.

This is not investment advice and is intended for entertainment purposes only.

Dream of Diversification

(Sing the title like “Californication” by the Red Hot Chili Peppers)

I was already writing a piece on diversification this week when a close friend sent a TikTok about a woman who initially started to impress a guy in one of her classes (no shame we’ve all had our moments). In the end, she ended up learning about how to diversify and grow her wealth so she was able to graduate debt-free. Awesome.

She also is great with a curling iron (something i cannot say the same about myself)

Anyway, I want to include it because it’s the perfect segway into what we are discussing today 👇

@cassidyjoys

admittedley this worked in my favor #stocks #storytime

Spread the Love

Don’t put all your eggs in one basket and don’t put you basket in all eggs.

If you put all of your money on one stock it will make you very exposed to the risk of losing all your capital in the event that the company may take a turn for the worst.

If you put all of your money in just stocks you run the risk of the market as a whole undergoing significant downturns and taking your wealth as whole down with it.

So… WHAT DO?

Reasons for Diversifying your wealth across different stocks or asset classes:

1. Spread your market risk like butter on bread:

   Diversification helps spread your investment risk. Different stocks and asset classes may respond differently to market conditions, economic events, or geopolitical factors.

   If one investment performs poorly, others may perform better, helping to offset losses.

   A good example of this is when the stock & real estate market was down bad during the 2008 housing crisis, people fled to gold which performed well compared to other asset classes.

   Does this mean you need to go out and buy gold?

   No need to jump the gun and make any purchases but it’s good to know there are more asset classes outside of the ones you typically read about in the news.

2. Smooth out your portfolio volatility:

   By including a variety of assets in your portfolio, you can potentially smooth out the volatility of your returns.

   This means you're less likely to experience extremes in your portfolio.

   When you only hold a couple of companies, their performance dramatically impacts your portfolios movement each trade day.

3. Mitigation of Company-Specific Risk:

   Investing in multiple stocks helps reduce the impact of company-specific events, such as poor earnings or management issues, on your overall portfolio.

   It can seemingly come out of nowhere when big scandals take place in publicly traded companies. When they do, if you have a lot of your eggs in that companies basket, then you’ll really feel the burn.

So this was just the beginning of diversifying… next week we will talk about over diversifying to a point where your portfolio essentially just reverts to the mean.

Weekly Tidbits

• Haters gon’ hate and regulators gon’ regulate: Anti-monopoly regulation is continuing to be a threat to big players trying to get bigger. Apple got a massive fine of $2 Bil slapped on them from EU regulators for suppressing competition in the streaming space. Jet Blue and Spirit Airlines have reportedly called off fighting regulators from blocking their merger.

• From Tweets to Yeets: This week, former Twitter executives filed a lawsuit for $128 Mil in severance that was never paid to them against Musk and X Corp.

• Hoop Dreams: Congrats to my girl Caitlin Clark for becoming the all-time leading scorer in NCAA Division I—men or women!!!! Also - one of the 🐐s, LeBron James, became the very first player in NBA history to hit 40k career points.

Stonk Enjoyer in the Wild

A few weeks back I got to have a super fun convo with Jack Allweil about selling covered calls… and I had to talk the mess about my time at Robinhood of course.

If you want to give it a listen check it out below and follow/subscribe to Jack on Youtube and X.

Meme of the Week

Credit @InvestmentTalkk