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View Full Version : Parachutes vs. Pillows: Why Diversification Doesn't Work



adufutuvorug
12-26-2017,
A dear friend of mine wants to celebrate an important health milestone by going skydiving with friends. She feels happy and healthy and excited. She wants to do something very thrilling to celebrate.

I'm going to help my friend celebrate, by way of something very mundane: I intend to photograph the event from the ground. Of course I'm excited to be there, and I understand my friend's motivation -- it's just that I am not a thrill seeker (especially when it comes to heights)!

Similarly, I don't take big risks with my investments. I'm sure it's a thrill to make a million, but the risk of losing all my capital is too terrifying for me to stomach.

aesterojx
12-31-2017,
What fascinates me even more is how this contrary view of diversification is magnified when you consider how markets can correlate.