Is Portfolio Diversification for Idiots?

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From Baltimore – Peter Lynch calls it “diworsification.”

Warren Buffett says diversification “makes very little sense for those who know what they’re doing.”

Mark Cuban simply says it’s for idiots.

The expert on today’s Market Wake-Up Call segment is the founder of Pillar One Advisor Manward Press, Andy Snyder. And he agrees with these legendary investors.

Andy talks with host Rachel Gearhart about how you can avoid an investor’s life of mediocrity by focusing on core sectors rather than broadly diversifying.

“We have to get away from that mindset where having so much of everything is enough,” Andy says. “We need to figure out what we’re passionate about and really shrink that down into a few core holdings that we know better.”

Poor diversification decisions can lead to mediocre returns – at best. One way to avoid that is to identify those sectors where getting in early can reap rich rewards. Andy is a proven winner there – and right now, he’s focused on cryptocurrencies and special purpose acquisition companies (SPACs).

As a longtime investor in crypto, I appreciate Andy’s measured, eyes-wide-open approach to this sector. He didn’t follow the hype but, instead, applied patience and insightful analysis to design a true “smart speculation” strategy for investing in crypto. The results – which are shown below – speak for themselves. And they explain why we at the Club look to Andy and his research for guidance.

Of course, many of you are asking why anyone would focus on a volatile, frothy sector like crypto for their portfolio strategy. Simply put, to get outsized returns.

Let’s be clear: Crypto is speculation. And truth be told, speculation is not investing. With investing, you can count on share prices rising in conjunction with positive earnings growth and an expanding economy.

So stock investing – if done correctly – is as reliable as the deafening chorus of the 17-year cicadas I’m hearing in my backyard as I write this. With our investments, we want to focus on core sectors that are proven to do well over time, taking into consideration our risk tolerance for losing money in the shorter term.

But, as Andy points out in today’s Market Wake-Up Call, we may well be in for a period of mediocre returns – at best – from the stock and bond markets.

But here’s my other point: Speculation is also not the same as gambling. With gambling, the odds of winning favor the house, not you. With smart speculation, the upside odds are proven to be in your favor. This is why I – and experts like Andy – embrace smart speculations, like crypto, as wise strategies for avoiding mediocre returns.

Now, the media would have you think the crypto sector has tanked and the odds are no longer in your favor. I think that depends on your time horizon. We need to keep the bigger picture in mind when it comes to crypto and blockchain technology.

Over the last two years, Bitcoin is up more than 300%, while the S&P 500 Index is up about 47%. Ethereum is up around 1,000%, and Cardano – an energy-efficient crypto and one of Andy’s favorite crypto “Buys” – is up more than 2,000%.

Of course, crypto is still an unsettled sector that is clearly vulnerable to short-term moves up and down. We saw exactly how vulnerable in recent weeks, thanks to the social media whims of Tesla (Nasdaq: TSLA) co-founder and CEO Elon Musk. Yet, despite Musk’s negative tweets about crypto, Tesla still owns more than $1.5 billion in Bitcoin. Mark Cuban also continues to be a big investor in the sector.

As Andy likes to point out in his research, there is always a bigger story than you’ll read in mainstream media headlines (as he discussed in his Oxford Insight article on Friday).

That’s why, when it comes to smart speculations in sectors like crypto, cannabis and SPACs, it’s important to keep your time horizon front of mind and invest while it’s still relatively early – and only with money you can afford to lose. Because the outstanding odds for making outsized returns – risking small amounts of capital – are still in your favor.

We don’t know whether the odds of such returns from crypto are 2-to-1, 5-to-1, 10-to-1 or more, but these volatile sectors are here to stay. You can choose to ignore them and stick with traditional asset investing, but you then risk the “diworsification” of your wealth.

To learn more about smart speculation strategies focusing on specific sectors, like SPACs, check out Andy’s latest presentation here.

Enjoy your Sunday,

Julia