YouTube video (conversation) by Adrian Reid discussing common diversification mistakes for retail investors. Speakers argue that holding 10–20 passive, home‑market long‑only stocks is not true diversification because those holdings are highly correlated and vulnerable to market downturns. They recommend diversifying across international markets and across strategies (trend‑following, mean‑reversion, rotational momentum) to reduce drawdown and smooth returns.
Chapters
First think about the mistakes that, that.
People typically make with their investing.
I've got 10 stocks in my portfolio. I'm diversified. Like really, you've got 10 stocks, right? Or maybe you've got 20 stocks and you're, you know, you feel like you're very diversified. But all of those stocks, for most people who are, you know, just general mom and dad investors are passive buy and hold investments. And if the market crashes all or.
Goes down significantly over 1, 2, 3.
Years, all of those stocks are probably going to go down. They're highly correlated and typically most people.
Will invest in their own market, their home market, because that's what they're comfortable with. I started trading Australian stocks. I'm Australian, you know, many most US investors would start trading US stocks and the same for all around the world.
But being long only as in buying stocks, hoping they'll go up over time in your home market is very narrow from a risk management perspective.
Because if something happens to your economy.
What happens to the stock market, you know, goes down, falls, and if you don't have diversification into other markets, then you're solely at the mercy of your home market. One of the best ways to diversify.
Is to go internationally, different markets.
As soon as I started trading, Australia, us, Hong Kong, Canada, they're the stock market stock exchanges.
I trade in my account right now. When I diversified to that level, my results improved dramatically. Much smoother returns, much less draw down.
Lower risk and less risk of shocks.
When I think about diversification, it's strategy, market time frame.
Strategy means things like trend following. Buying stocks that are going up, holding.
Them until they stop going up and start going down and selling them. You make money out of the middle of a big trend.
Mean reversion stock is going up, bad news hits, it has a dive, people overreact and then it bounces back up.
You buy the dip, sell the rally.
Is mean reversion, rotational momentum.
Buying the strongest stocks and then when they fall, then you buy the stronger stocks and when they fall, you buy the strongest stocks and you keep rotating into the strongest stocks are different strategies that you can diversify into as well.
So it's not just about markets, it's also about strategies.
