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Why Diversification Is For Losers
"Invest for the long-term," "buy-and-hold," "stay diversified," are the mantra of every asset-gathering commission-taking 'manager' out there... However, as JPMorgan notes, empirically that is a loser's bet. In fact, investors owning just the top 10 performers of the S&P 500 has never suffered a single rolling 12 month period loss (lowest was April 2009 +0.24%).
Getting a few key calls correct this cycle (Apple, Google, Facebook, Amazon, Microsoft, Gilead, etc.) meant the difference between outperforming or lagging the index. For instance, if one were to strip out just the top 10 contributors to the S&P 500 over the last year, the index would have a negative total return (vs. +3.6% YTD as of 12/4).
- Owning the worst performing 490 out of 500 stocksin the S&P 500 has had a negative 12m total return during 38% of periods over the last 15 years.
- The top 10 out of 500 stocks never had a single rolling 12m period with a negative return (minimum 12m return = +0.24%, April 2009).
So that's why everyone is piling into the best performers.
Amid FANGs, NOSHs, and just NFLX all on its own... Stock concentrations are building dramatically. However, history tells us that this level of performance concentration is only marginally above average and well below the outlier levels of the Tech Bubble.
Charts: JPMorgan
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Awesome investing idea. Please let me know what the Top 10 Performers will be over the next 12 months so I can invest in them.
I'm not sure but I've got a dead cert for the 3:15 at Ascot on Sunday if you're interested.
Thanks Carnac!
Most likely the ones that:
Have most short interest
Are the current whipping boy (i.e. anything commodity related)
Is a weapons manufacturer or deals with "defense"
Things tend to run in cycles, such as Tech was hot late 1990's and commodities were crushed then. This appears to be rather similar.
Buying SP Futures at 3:15pm ET is all you need to know.
The Top 10 performers?: blockchain, blockchain, blockchain, blockchain, blockchain, blockchain, blockchain, blockchain, blockchain and blockchain.
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or when the FANG NOSH stocks crap out.
if I was that good, I would have held Silver thru 4/25/11 and gold thru 8/31/11, out of the market spring 2000 and Summer 2008 and , drum roll, in banks starting March 2009 when FAS109 mark to BS accounting for banks was adopted.
But then lets discuuss shorting the market.
Amazon: what if it misses its 1.89 a share eps for the year--after all its earned 28 cents thru first 3 qtrs. Anybody think Amazon margins will increase this year when everybody else in on line is competeing with amazon via price? A 25% increase in amzn sales, which now includes cloud (highly competitve) streaming (competitive) is about the increse its been having the last several years. Amazon, with the holday season being crappy and a shit load of discounting, could beat on sales but miss huge on eps.
This is why everyone is piling into Vanguard funds.
Vanguard also costs much less than other used car salesmen, I mean Financial advisors.
William J. O'Neil wrote about diversification a long, long time ago.
Why is this suddenly news?
Geez, all I need is for the FED to tell me what the top 10 are, and I'm all set!
Seriously, "The top 10 perform better than all the rest!" No shit. What a retarded article.
"owning just the top 10 performers of the S&P 500"
Even the worst mathematician can tell you that. if you have a "benchmark" and you select only the highest permorming members of that benchmark, you will outperform the benchmark. You wasted a lot of time to state the obvious.
The bottom 490 will almost fit into an UBER
http://seekingalpha.com/article/3735196-uber-is-valued-higher-than-gm-ford-and-most-of-the-s-and-p-500
Remember when they got rid of pensions and forced everyone to throw their life's savings on the crap table called the Stock Market? Don't worry, it's safe because you are in a mutual fund that reduces your risk! Forget saving in a bank, 5 and 1/4 interest is over! Step right up ladies and gentlemen, watch me make your financial lives disappear!
But yeah lots of people got rich on the stock market, and only the dumb ones lose money. Just keep your money in there forever, because anything else is a sucker's bet. It has to be true; I heard it on the internet. And CNBC.
Thats why my strategy works so well. I just check which stocks have the best performance, then buy them last year.
Doc, is that you?
There's the 3:30 ramp.
wowzers look at that 3:30 ramp. Right on time. Any coincidence this article was published at 15:30?
<----------- Buy S & P 10
<----------- Buy S & P 500
Dat ramp...why fucking diversify when you can just BTFD at 3:00? I mean, seriously WHY THE FUCK am I not doing this? I feel so stupid most of the time for sitting here when this shit happens EVERY FUCKING DAY.
What crap analysis - this is completely done in hindsight.
The true measure would be quarterly rankings of the "best" performing stocks held through the next quarter forward without the benefit of hindsight. My guess this does not nearly perform as well ....
So...once the market crashes to the bottom of the stairs of the CN Tower and gold pops...I should sell all my gold and buy FANG?
Bonus question: Does longing FANG come with 3 magic beans??
So if I buy a winning lottery ticket for $1 and win $300,000,000 my ROI will be the hands down winner. Just tell me the winning lotto numbers ahead of time and I can be the 'top' performer.
Look, everyone knows that diversification in a normal environment (which we currently do not have) is about safety more than it is about performance. The more you shoot for the moon the more you cna make and the more you can lose. This is news?