Generate Value

Why do many agents not diversify their stock portfolios in practice?

At the time of the credit crisis it emerged that many people held undiversified portfolios. Why is it that many agents, who obviously must understand the principles of diversification, did not diversify their stock portfolios in practice?

Public Comments

1. Their tolerance of risk was higher.
2. because the general statement of "dont put all your eggs in oner basket" is(to me) wrong. you dont need to be diversified to be rich. look at donald trump. he invests primarily in real estate. it can be risky do diversify and not diversify, but if you are well experienced in your type of investment, then iits probobly where you want to be.
3. Some of them thought they could deal with the risk. They were depending on extreme events not happening. Those extreme events do happen fairly often, and they did.
4. Diversification is stupid. All you do is cancel out gains in good sectors by being lazy and holding in all sectors so you don't have to watch your investments. It's like betting an equal amount on all basketball teams, so you can't lose, well you can't win either. If you are happy with the net gain across the board, you are not an investor, you are a mushroom that's not poisonous or good to eat either. Mutual Fund managers love it, because it takes no effort and it's hard to lose. They still get paid for basically tossing your money in a pot and doing whatever they feel like all day.
5. An agent needs to know all about their portfolios in order to sell them. Time and knowledge are important to them.
6. There's a saying that you need to diversify to reduce risks or 'Don't put all your eggs in one busket', there's another saying (mainly used by Warren Buffett) 'Put all your eggs in one busket and watch it closely'. Warren Buffett is the richest investor in the world and knows what he's talking about and has nothing to do with risks but prudence. Also remember if you buy lots of different shares you'll make your stockbroker rich not yourself.