Diversification key to robust portfolio design

The key to designing a robust portfolio that can withstand a multitude of market pressures is choosing stocks and funds that have diversification across all asset types, investment styles and industry sectors . That way, if one part of the market struggles, other areas take up the slack and lift the portfolio. For instance, right now the best stock market gains are being achieved by a core group of technology and internet-based stocks that Wall Street dubbed the FAANG stocks.  FAANG is an acronym that stands for Facebook, Apple, Amazon, Netflix and Google.  We have invested in these stocks because we have been impressed by their fundamentals, and, as a result, we have made nice gains in this sector. These companies have revolutionized the way people all over the globe buy and sell goods, get their news, and build social networks. Indeed, it is hard to conceive of modern life without them.  Their ubiquity in our personal and social lives is reflected in their dominant economic position, which is likely to continue for the foreseeable future. It’s tempting, for even the most disciplined investors, to invest heavily in those parts of the market that currently have the best returns.  But such a narrow focus carries with it hidden dangers.  The FAANG stocks are in such a dominant position because they disrupted and overturned successful business models of the past.  Does anyone remember Hewlett Packard, or IBM?  These companies are still around, and even making a profit for their shareholders, but they are no longer the dominant players they once were and their stock price reflects their relative decline.   You can be sure that in a business incubator, or even a garage, the next disruptive technology is being conceived that will knock one or more of these dominant players off their perch. That is why, even when the best gains are to be had in a narrow segment of the market,… | Read More »