Set forth below is the text of a thread-starter that I posted to the Goon Central board:
Yip made a comment about having a “diversified” portfolio. That certainly sounds like a good idea. Diversification reduces risk.The trouble is that there is a huge incentives for those in The Stock-Selling Industry to offer non-diversified advice. If commissions were the same for IBonds and TIPS as they are for stocks, the “experts” in this field would tell us to buy stocks only when they are selling at reasonable prices. So long as the incentives are not diversified, the advice is not diversified. It is all tilted in favor of stocks. That leads in time to insane overvaluation and then buying stocks is like buying lottery tickets.
We also need diversified posting. If we heard all points of view at all boards and blogs, we would collectively be able to make diversified choices. When most of us become addicted to GRQ, most of us become hostile to diversified discussion. So we hear one side over and over and over again. Again, stocks become lottery tickets. And lottery tickets do not have a place in a truly diversified portfolio.
Valuation-Informed Indexing is diversified OVER TIME. I will be able to buy a huge amount of stocks when they are priced reasonably because of the losses I avoided by refusing to go with a heavy lottery ticket allocation. By owning more stocks when stocks are priced well and less stocks when stocks are priced poorly, I am able to own the right amount of stock over time while not taking on the insane amount of risk that Buy-and-Holders take on when they go with a high stock allocation when they are priced to be lottery tickets.
In an ideal world, we could all own diversified portfolios AT ALL TIMES, not just over time. For that to happen, we need to permit diversified posting. No investor wants to destroy his hopes for retirement. If we permit investors to learn what the research says, they will follow the same common-sense approach to buying stocks that they employ to make all other purchases, and stocks will always remain available at prices at which going with a diversified portfolio makes all the sense in the world.
Diversification makes sense. It is the Ban on Honest Posting that does not make sense. The Ban on Honestzzz Posting causes stocks to be priced at levels at which they become lottery tickets and lottery tickets should not be part of a diversified portfolio. So long as the Ban on Honest Posting remains in place, the best that rationalinvestors can do is to seek to be diversified over time.
My sincere take.