When Diversification Fails
1) The richness of life is in diversity
2) But do we really enjoy diversity
3) Or do we just feel that we have enjoyed diversity
4) We love traveller abroad but once we reach a foreign destination we huddle together with Indians
5) The idea of diversity is to adapt not only with the climate but also the people
6) In fact the people and their culture enrich our souls
7) We should try out their cuisines but instead we carry our own food or sometimes even our own cook
8) The same is seen in companies. The Bengalis form their group, the Maharashtrian theirs, the Gujrati theirs and so on and so forth
9) A platform that offers diversity is often abused by our tendency to aggregate with those who are similar instead of exploring the dissimilarities of the unfamiliar
10) This is something that we see even in our investment Portfolio
11) We may invest in several Mutual Funds schemes but if done mindlessly it leads to excessive overlap of stocks across schemes
12) True diversification should not have any coorealtion between schemes of mutual funds in the portfolio
13) True Diversification leads to better risk adjusted returns
14) So if the Diversification isn’t pure, it leads to either higher risk or lower returns
15) Be mindful when it comes to constructing the Portfolio and ensure as low a correlation as possible
16) This will produce better returns with lower risk
I rest my case
