Wealthy: Diversification Is Not In The Cards
Isn't it ironic that the financial services industry tell people to diversify? When pursuing the path to wealth, wouldn't it make sense to follow the strategies of the wealthy?
If we are to do that, the best thing is to throw most of the advice of the financial services industry away. Following them is only going to keep you poor.
So what do the wealthy do? Do they diversify?
The reality is they do exactly the opposite. They find that the majority of their wealth comes from placing a few well placed bets. In other words, when it was time, they went big.
Think of guys like Kyle Bass (mortgage crisis), Bill Gates (computers), Larry Ellison (data), and Marc Andreeson (Software). They are all known for specific bets that paid off in a big way.
Here is the Top Ten from Bloomberg's Billionaire Index. There is something common about most of the names on this list.
Almost all these people are easily identified with a single company. Names such as Amazon, Tesla, Microsoft, Berkshire Hathaway, Google, Facebook, and others are the main source of wealth for most of these individuals. They are not hedged or "diversifying".
In fact, the reason for their meteoric rise in their holdings is because they risked it all on companies that ended up being explosive.
Another interesting observation is most of the list is in the technology realm. This is something to keep in mind when looking at the world of investment. If there is anywhere that the money printing of the last 12 years can be found, it is in the technology arena.
An equally important piece of the puzzle is these individuals were actively involved with what is taking place. Certainly, the fact that many of them were the founders of companies that became highly successful played the role in being on this list.
Nevertheless, there are lessons in this for all of us. Passive income is a great way to get ahead yet it is not the majority of the path to take. At the same time, spreading ourselves all over the place is not profitable either with time or money.
The challenge with diversification in investing is that it limits the upside while not eliminating the downside risk.
Diversification is meant to reduce losses when things turn south. As we saw last March, when markets truly collapse, most everything goes with it. Diversification is of little help.
What we also know is that when things take off, being diversified hinders potential gains. The return generated by the "runners" are held back by the laggards.
Of course, this is not an invitation to be stupid. One needs to be thoroughly schooled in a the area(s) of focus. A great deal of time and research is require to know exactly what is taking place within that industry and/or company. This is not a path for the lazy.
With cryptocurrency, there are riches to be had. We are going to see enormous payoffs in some tokens. Of course, there is a lot out there which will end up worthless, so we need to be prudent about where we focus our time or money.
It takes a great deal to be successful in this world. Many have ideas yet lack the ability to pull things off. Many also fail to be properly financed. In fact, many of the reasons for regular business failure are also alive in the crypto world.
That said, many got into Bitcoin in the early stages in spite of the risks associated with it. Those who got in under $1,000 and are still hodling, are in great position now. If we do see the numbers some are predicting, those with 30, 50, or 100 Bitcoin can end up being in a fantastic position. This could happen in the next couple of years.
There are also other opportunities out there. However, to be an expert in everything is impossible. There simply is not enough time. Nevertheless, there are going to be projects that provide a better return over the next decade, from this point, than even Bitcoin. The challenge is finding them.
Naturally, even from here, Bitcoin could provide enormous benefits to people entering them. Even at this price, if the forecasts are correct, we will see magnificent gains.
It is one area where the maximalists have the right mindset. They believe fully in Bitcoin and put their money in alignment with that belief. Of course, I break from their view that Bitcoin is all that has value and everything else is trash.
There is life changing money in cryptocurrency. Those who are able to accumulate strong positions in a few different tokens that hit it big will end up with "life changing money". Those who spread their holdings over hundreds of tokens might end up doing okay but they will have a lot of losers in there.
The key, in my view, is to find those that have a great deal of promise and follow them closely. By doing this, we can get involved as much as possible, building out stake. If things start to moon, we will find ourselves on the right side of a massive run.
If we can do this, wealth is certain to follow.
The is not financial advice. It also applies to long term objectives as opposed to trading. Traders operate upon a completely different set of principles.
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