There’s common chatter amongst financial advisors and investment professionals about how often we need to defend diversification.
Quite frequently, diversification will be out-performed by plenty of benchmarks.
It’s the untimely market declines and the counter-intuitive amount of time to recover from a decline that gives diversification value.
And this value doesn’t reveal itself all that often. The market is, after all, up far more frequently than it’s down.
While on my morning run today – jogging at my usual pace – another runner sprinted past me.
Shortly thereafter, the runner slowed to a walk. I, then, passed the runner. And then, the runner passed me at a sprint again a few moments later.
Quickly, I gauge that she’s clearly doing another form of training and isn’t some over zealous runner losing steam every 60 seconds. Sprint, walk, sprint, walk goes the cadence and her recovery. And, just as fast as she was sprinting, I spotted a couple investing overlaps.
First, I was curious if we’d have the opportunity to see who reached a ‘finish line’ first. The sample size was decent – about 2 miles in the same direction until she turned – we passed each other back and forth 6 times, and I finished about 20 feet ahead. This likely had something to do with wanting my bias to prove correct and stepping on my pace mildly – regardless, it was close enough.
If I was diversification, and the speed training sprinter and walker was a stock picking market timer, I won and probably enjoyed the view a little more. That’s a life outcome very acceptable to most.
Second, I’d also like to defend the speed trainer. We were clearly playing different games. And this type of running quite likely was preparing her for something far different than my goal of breaking a mild sweat and enjoying some sunshine.
Consider investment planning where the pace is much more batched – save, stay liquid, wait for opportunities with greater upside than traditional investing, and then pounce (or sprint). This is a fine game – just a different game. Usually one with lower probability and higher impact so you need the endurance (capital) to sustain your ability to invest (sprint). Not only can it be considered, but when, why, and how is a totally different blog post.
Just like running, investing offers all kinds of games. Knowing your game is more than half the battle.
But, don’t forget, my jog still beat the sprinter.
Thanks for reading,