Warren Buffett's investing lesson: sector diversification doesn't work when markets crash. Google and Amazon blur sector lines, and correlations spike during downturns, so everything falls together. The real move is holding cash when stocks decline, but advisors won't say it because they profit from keeping you invested.
Don't take my word for it. Warren Buffett's been pointing it out for years. I want my legacy to be the same as his, not tons of money, but that we taught people how to be better investors if only they'd listen. I want it to be the same legacy. I worked that out because I asked AI, what should my legacy be? Should it be a bigger fund? And it said no. Okay. Demi, I just answered sector risk in that there's a high correlation generally between sectors. However, there's a problem. What you think is a sector isn't a sector. I'll tell you why. That's communication services. That's Google. Isn't that the same sector as technology? Have they misnamed it? Hang on, Amazon is consumer cyclical sector. So what you think is a sector isn't a sector. And what you're implying is there's a correlation between sectors of companies inside a sector compared to companies outside a sector. What if I told you when the markets fall, which is when you are actually bothered about correlation, because when the markets fall, presumably you want diversification. Obviously when they rise, you don't want diversification because that would imply you want some things to fall. When the market's rising, you want concentration. So, when they fall is when you want diversification, i.e., you want lack of correlation, which means you think different sectors. What if I told you that the data shows that your assumption is wrong? In other words, when the markets fall, correlation increases between sectors. In other words, everything falls in tandem, which is why when the markets fall, your best bet, like 2022, is not, oh, I better go buy Costco because I've got too much tech. No, Costco fell as well, the whole bloody market fell. You need to get out of the market and be holding cash. Nobody will tell you that though, because they don't earn money for telling you to hold cash.
