The “diversification” scam is spreading you thin and stealing your money. So knock it off already.

If you’re a retail investor – and odds are you are if you’re here, certainly to a greater degree than the frequenters of facesnap – then you’ve undoubtedly cracked a few personal finance books in your day. Whether it was The Wealthy Barber or Rich Dad Poor Dad or some pedantic neurofinance claptrap, chances are you’ve taken the subject at least as seriously as your peers, even if the entire lot of you is still but a modest meal of meek molluscs in the deep dark oceans dominated by professional sharks.

But you have to try, right ? Even if it means asking for help from the pimply faced finance grad at your local bank’s advisory branch, you still have to max out your RRSP or 401k in addition to opening an RESP for your kids filled with Vangaurd “medium risk” ETFs. How could you not ? You’d have to be some kind of heartless, thoughtless loser not to. I mean, it’s just the responsible thing to do.

But let’s face it, even with Pimples’ advice, you’re not even on the same planet, not even in the same galaxy as your competition, not least of all because you haven’t read and absorbed with every sinew of your being The Black Swan, Antifragile, and What I Learned Losing A Million Dollars, but also because you thought you could delegate the hard work. Much to your ever-lasting shame and loss, these latter titles are sine qua non for someone aspiring to the mean (ie. 2.1% yoy) much less someone who ever hopes to buy his own business, a second home, send his kids to college, or even something as unambitious as buying off a pesky civil servant who’s making your life difficult.i

Needless to say, you’ll get a lot more bang for your buck if you stop making deals with the devilii and kick the portfolio theorists and their fee-oriented “diversification strategies” to the curb – then spit in their faces for good measure lest they get the wrong impression. The only interest of advisers is their interest for the simple reason that they’re hungry and borderline unable to provide for their families otherwise. So unless you’re short of charities to give to in your lifetime, you’ll be far better served by following the JD Rockefeller model of a) be as ruthless, conniving, focused, and as tight-fisted a jew as possible during your productive years, and b) buy your way to heaven with the proceeds. They say crime doesn’t pay, but indeed it’s the only thing that ever has.

So enough of the “diversification” gargle. It only serves to ratchet up the fees and bonuses of people too unintelligent to invest their own money properly. I mean, don’t you think it’s kinda bizarre that investment advisers suggest stock picks that they themselves don’t own ? Fuck conflicts of interest,iii get skin in the game! So either invest in yourself or find a two or three prospective all-stars that you have confidence in, in an industry you understand well enough to have an edge,iv and roll the dice.v You might not win, but at least you’ll have had the opportunity. Right now, all you have is “the recommended way” and therefore “a good night’s sleep,” all while your nest egg is being pilfered by racoons, vultures, and dorks in empty suits.

It’s almost a joke by now.vi So knock it off already.
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  1. Perhaps you laugh, but only because you a) haven’t travelled, and b) falsely think your community immune from regression to the mean. This isn’t the funny footnote. That’d be #5.  []
  2. The devil here is the government and its “tax deferred” retirement / education plans. For all intents and purposes, you can’t enter into agreements with non-entities, ie. governments, so it’s little wonder that the rules will be changed right out from under your feet just as you were about to send little Timmy to college or were about to retire yourself. And there won’t be a damn thing you can do about it. That’s just what is means to make deals with the devil.   []
  3. Unless they’re penny stocks that the adviser and a few colluders could easily have cornered, of course. But you shouldn’t be taking penny stock tips from anyone ever anyways. For the most part we’re talking NYSE, TSX, or NSDQ positions, and that motherfucker’d better have his dick on the line too. []
  4. Whether that’s weed or tech or auto manufacturing, you must know something about something. Surely! []
  5. You needn’t roll the dice with the whole basket, you can always stock most of it away in safer bonds. Might I suggest some of the Russian varietal ? I suppose you thought I was going to suggest Bitcoin at this juncture, but you’re either on that boat or you’re not ; it’s long since sailed. []
  6. How about this little gamble ?

    Diversifying Fund I will specialize in offering the purest form of diversification available to investors. Tinderbox Capital will allocate physical cash into a physical box that we’ve painted black. This box will be known as the Black Box of Diversification. After that, no one knows what will happen to that physical cash. Anything could happen to it. It could double. It could halve. It could triple. It could third. It could N. It could 1/N. It could become sentient, take all your money and bet it on 17 at a roulette wheel and make you crazy rich. No one knows what happens in the Black Box of Diversification. That inability to know what returns your cash will generate provides you with an investment product that has no correlation to any other investment or asset class. Tinderbox Capital’s due diligence process for Diversifying Fund I has consisted mainly of practicing typing “diversifying” really quickly (seriously, try it, not as easy as it looks).

    Tinderbox Spokesman Johnny Debacle:

    “Assets in the investment universe are crazy correlated. There is probably a way to quantify this, but that seems difficult. Difficult does not fit our business model. As things get especially bad or as market participants pile into the same formerly exotic and diversified assets in the endless quest for yield, cross asset correlations push ever higher. What people need is the ability to truly diversify their portfolios. They need Diversifying Fund I.

    Our last two funds, Dangerous Fund I and Dangerous Fund II, filled the niches they sought to plug. Each has been panacea to investors who were overweight return and underweight risk. “Riskless risk” is the most efficient risk producing innovation that any investment management company has designed yet, despite how hard Paulson & Co have been working at their own proprietary solution(s). Now it’s time for us to do for Diversification what we did for Risk. Also, Dangerous Fund II is a smoldering pit of dollar bills from which we’ve already harvested all our fees, and we need to feed our families…really expensive platinum-plated snow leopard sushi designed by Apple.

    Diversifying Fund I will offer the fullest diversification available to investors. Tinderbox Capital will charge a traditional 2 and 20 fee structure for managing Diversifying Fund I. 98% of investor subscriptions will be allocated to the Black Box of Diversification and 2% to the Reserve Box. Management fees will be collected from the Reserve Box. The Reserve Box will be painted green to assure that we do not confuse the Reserve Box with the Black Box of Diversification. We make no guarantees that we will not either intentionally or unintentionally confuse the two boxes. This lack of guarantees offers another layer of diversification. Performance fees will be determined by applying 20% to arbitrary amounts taken by management from the Black Box of Diversification. Any investor who wants to redeem their investment from Diversifying Fund I is free to make such a request at any time. Upon the receipt of such a request, we will stick our hands into the Black Box of Diversification and remove some cash. Then we will likely put the cash back into the Black Box of Diversification because our management agreement gives us discretion as to whether we honor redemption requests. This discretion provides yet another layer of diversification. See the prospectus for more details.

    We know that young risk-seeking investors demand places to put their money to work, places where they can allocate $10,000 and potentially lose it all. This is the niche that Dangerous Fund I filled. We also know that young risk-seeking investors demand places to put their money to work, places where they can allocate $10,000 and certainly lose it all. This is the niche that Dangerous Fund II filled. Dangerous Fund I and II are appropriate for investors whose portfolios are overweight return and underweight risk and are thus seeking proper balance. Now that these young investors have portfolios that are perfectly balanced with respect to risk/return, they need diversification. Diversifying Fund I is appropriate for investors who portfolios don’t have enough diversification

    This fund may not be appropriate for everyone, but for you it’s perfect.”

    Are you laughing yet ? Via Long Short Capital.

    []

One thought on “The “diversification” scam is spreading you thin and stealing your money. So knock it off already.

  1. […] aluminum boxen for the next decade and you’ll be well on your way to outperforming whatever index fund diversification scam you’re currently roped into. […]

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