Why Mark Cuban Said "Diversification is for Idiots"

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Күн бұрын

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"Don't put all your eggs in one basket" is common investment advice because diversification prevents losing everything if one investment goes to zero.
But diversification also prevents upside, which may be bad for some investors.
In this video, we'll explore the idea of diversification and discuss when it's a good and bad thing for investors.
To understand the problem with covered calls, we'll look at a potential trade I could make with my SQ stock position and run through four scenarios that could play out after entering the trade.
0:00 The Problem Diversification Solves
1:15 Why Cuban & Buffett Bad-Mouthed Diversification
2:50 Volatility isn't always bad
7:15 Who Needs Volatility & Who Should Avoid Volatility
7:35 Wealthiest People Didn't Diversify
11:43 Morgan Housel's Genius Quote
12:48 Connect with me on Twitter!
== Recommended Resources/Videos ==
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Пікірлер: 109

@projectfinance 2 жыл бұрын

To clarify, I DO believe in diversification. I said that in the video. Diversification is essential for wealth preservation. But to build a lot of wealth with a broadly diversified strategy, you need 1) a lot of cash flow and/or 2) a lot of time. Some people interpreted this video as a recommendation to go YOLO your life savings on one thing. All I did in this video was present a counterargument to diversification. It's only math. Math is truth. Connect with me on Twitter if you want to chat: twitter.com/butler_chris Newsletter link: pfnews.substack.com/p/coming-soon?r=ldxpm&

@kangokidkidd4037 2 жыл бұрын

Your an awesome guy...I am so confused with a long call and a long put. Do you have a video that will break this down please and happy Friday ..

@denniss8644 2 жыл бұрын

I really enjoyed the study you did on the 70K+ iron condor trades, that was some quality work. I saw the video and the article on your web site. So if more writing gets you back to that type of study, please do so - we need more quality materials like that.

@huamichaelchen 2 жыл бұрын

Diversification == Not doing anything Concentration == Doing something

@shaihasani6859 2 жыл бұрын

Actually Charlie Munger said diversification is for idiots. Cuban is just parroting borrowed wisdom

@peteryu9866 2 жыл бұрын

Math is not truth.. Truth is an Interpretation.. If someone says Math is truth or Logic is logic.. What they are saying is screw your interpretation.. Use their interpretation instead.. Scammers and politicians do it all the time..

@denniss8644 2 жыл бұрын

I've been thinking more and more about the old Andrew Carnegie quote "you can put all your eggs in one basket but watch the damn basket!"

@talkmoneywithmike 2 жыл бұрын

Love the content! Diversification has been misconstrued over the years, even Buffett said that, "Diversification is protection against ignorance". On average most people would be better in a index rather than diversify on their own. However, for people wanting to earn more and are willing to put in the work diversification is NOT the answer.

@ronniematrix89 2 жыл бұрын

Excellent info and insights. Good upload

@gurjassinghbatra5758 2 жыл бұрын

Hi Chris! Great video 👍🏼. Just one little question: don't you think that the S&P returns are low not only because of its diverse nature but because it consists of very mature stocks (cash cows)? And as a result, a portfolio of 500 growth stocks could still make a high return compared to the index? Best of luck!

@missv8594 2 жыл бұрын

Thank you, great video.

@dac_uk 2 жыл бұрын

Great slant on it, worked well for me being all eggs one basket, sold everything over time to average down from 14 on AMC to eventually 10.40, sold and have traded it since Best move ever Sold round about $50 thousands of shares

@avosquirrel231 2 жыл бұрын

I would like to learn more about risk management strategies when using more aggressive strategies.

@rezaarjmand7866 2 жыл бұрын

Diversification in "hi volatile" sector worked very well for me. In 2009 I got in QQQ for $46 per share now 12 years later 8 folds over plus dividend reinvested. now I have GREAT nest egg.

@michaelsaenz380 Жыл бұрын

Congrats

@karanchaudhari4555 2 жыл бұрын

Hi i m always loose in Indiana option trading 🙏please any

@gonzo1483 2 жыл бұрын

I noticed in some other videos that you had about 15 positions open. I'm currently trying to maintain only 3 positions, rotating between whatever is low correlation and high IVR/IVP at a given time. Bullish following dips in quality stocks basically. Would you consider 3 positions and some crypto hodling underdiversification?

@Josh-ed5ct 2 жыл бұрын

@projectflnance Nice and discrete. knows what you are doing ;)

@imranmotala700 2 жыл бұрын

Hi Chris didn’t see the link to the news letter. Can you please share

@projectfinance 2 жыл бұрын

Here it is: bit.ly/3EWS9vE

@CarlosDuarte2007 2 жыл бұрын

The explanation given Cuban and Buffet are quite clear, as less certainty you have, more diversified your portfolio has to be, what technically means that if you really do not have any idea how an investment is going to move, you should not invest in it! or simply invest a very small amount, so basically diversifying. When you have not any idea or information of the market, you just need to put your money in a savings account, otherwise you would be simply gambling.

@projectfinance 2 жыл бұрын

Exactly

@rubenhoek20 2 жыл бұрын

Yes man, very good vid thanks! Prob the best idea is to put a little bit of your capital into diversification. So let's say, every 100K you make, put 10K in diversification so you have atleast some of your money "safe" for mistakes.

@projectfinance 2 жыл бұрын

Yes I agree completely. Diversification is a spectrum.

@lamarjay4245 2 жыл бұрын

You nailed it. You believe it a com. Did DD..just have to trust n build its always a risk.

@lamarjay4245 2 жыл бұрын

@@projectfinance7772 ok 👍 got tell Thomas you referred me..I want to refer someone for you!!! Des Nutz

@bubblybull2463 2 жыл бұрын

Life is usually way longer than one expects, hence life is about managing risks. Diversification is absolute key over the long run.

@projectfinance 2 жыл бұрын

Agreed! I won't say diversification is for idiots! It's a sound strategy for good reason but has its tradeoffs like anything else.

@badgerfishinski6857 2 жыл бұрын

I like to go big on an intelligently calculated trades, BUT I set a disciplined early stop loss if I am wrong. If my thesis is wrong, I don't wallow in it. I get out quickly and limit my loss to a 'small' loss. I don't sit around and wait for it to drain my account. When I am right, I let it run and blossom.

@n9athan 2 жыл бұрын

Diversification might work in the sense that you aren’t exposed to stock specific risk. However, when the market draws down, everything becomes correlated and your portfolio takes a blow anyway. For this reason, to me it seems like hedging with index puts might be the better method of risk management.

@ryzen89 2 жыл бұрын

I'm confused, why would you put an index which only goes up? The S&P is a diagnol line upwards. And how does a portfolio decline if you aren't exposed to stock specific risk, market drawback refers to stocks?

@redapproves1330 2 жыл бұрын

@@ryzen89 think of long puts as a fixed cost insurance policy against unexpected catastrophic market wide crash

@zavainmardirossian8593 2 жыл бұрын

How do I get your newsletter please?

@projectfinance 2 жыл бұрын

pfnews.substack.com/

@Veteran_Nerd 2 жыл бұрын

Watches video: Concentrate your money into one thing so you can have hung growth. Me, an Intellectual: So, yolo GME otm options with a 1 week expiration and pray... got it 🤣🤣

@projectfinance 2 жыл бұрын

Please no!!! 😂

@Veteran_Nerd 2 жыл бұрын

@@projectfinance 🤣🤣🤣

@treydeuce8479 2 жыл бұрын

Leaps in SPY & QQQ gets me diversification and high volatility :) LOL

@cloudattack3279 2 жыл бұрын

People diversify after a green run, not a red one. You are moving from a good idea into a bad one. Defensive measure, you will make a buck, but you’ll never get to treasure. It’s in solid dd, risk management, and balls of steel.

@DimosthenisNikoudis 2 жыл бұрын

Love the video, but I'm not sure I agree that concentration is the only way to build wealth. There are strategies that can give high returns while keeping a good degree of diversification (writing covered calls, factor investing or even stock-picking of risky stocks ala Cathy Wood).

@projectfinance 2 жыл бұрын

Thanks! I agree with you. I didn't really talk about a diversification spectrum in the video. You don't have to be all-in on one asset or fully diversified with all assets. You can have a happy medium as you're describing.

@DimosthenisNikoudis 2 жыл бұрын

@@projectfinance thanks for replying! The thing with diversification is that the first few positions are the ones that have the most effect at reducing risk. Afterwards, above 15-20 positions, the effect of adding more becomes far smaller. So in theory if one could find 15-20 uncorrelated positions with high returns, this would outperform (on a risk/reward basis) both of the strategies. Of course finding 20 such positions is the real trick (otherwise we'd all be billionaires :) ), but I'd argue that even having 2-3 positions in a portfolio is a much better bet than having everything into 1.

@projectfinance 2 жыл бұрын

@@DimosthenisNikoudis I agree completely!

@sharlawya6868 2 жыл бұрын

I never heard of anyone becoming a multi millionaire from diversification 🤔

@Arcaryon 2 жыл бұрын

And I have heard of a lot of people who ended with a rope around their neck because they thought they were a lot smarter than they actually were.

@MC-gj8fg 2 жыл бұрын

Warren Buffet has said something to the effect that 30 strong stocks is all the diversity you need if you know what you're doing. This is limiting diversification, but we shouldn't be going so far as to yolo just a couple meme stocks on the other hand. Familiarizing oneself with 30 strong growth companies within sectors that had performed well and actively watching and managing that basket of stocks likely isn't bad advice if you know what you're doing.

@Tary88 2 жыл бұрын

Just as well to etf it. Add a couple growth stocks if you wish.

@thomasa5619 2 жыл бұрын

The benefits of diversifying drop as you increase the number of stocks you hold. I think Patrick Boyle might have mentioned that once you have 16 stocks you have 99% of the benefit or something

@carlhewitt5958 2 жыл бұрын

30 stocks is diversified

@MC-gj8fg 2 жыл бұрын

@@carlhewitt5958If ya want to look at it that way then yea, even 2 stocks is by definition diversified. We're talking about a matter of degree. Invest across 2600 companies across 3 index funds with most of it in S&P, but with NASDAQ and small cap value exposure, maybe return 12% over the long run. Know what you're doing and diversify only into 30 stocks across maybe 5 sectors that you watch, maybe double those returns, but a bit more risk. Invest in one stock that maybe goes through the ceiling or crashes and burns...hey, the best takeaway from this video is that if you're young you can "take your shot" and even if you end up broke you still have plenty of time to invest like a normal person and still have millions by retirement. I think the challenge lies more with a flaw in the human condition. While people do become marginally more conservative as they age, the reality is that very few people are capable of being a high risk taker at 20 and if they're broke by 30 just flip a lightswitch and decide "OK, let's try the conservative approach." The risk taker will typically keep doing how they do until they suddenly look in the mirror at 50 and realize retirement in slumping over dead at work. If you take your risks in your 20's and can retire by your 40s that's awesome, but if it's not working out, just know when to pull out of the dive. Even if you do make your money young, it's probably best to transition to more conservative positions afterwards to keep it.

@carlhewitt5958 2 жыл бұрын

@@MC-gj8fg disagree. I have a 401k but I'd rather invest heavily in stuff I know and am interested in. It's fine if you want to be average or slightly above average, but I'm betting on myself. Worst case is I have my 401k, but I don't believe people are willing to put in the work and take risks. I'm speaking about a lot more than stock investing though. I have a good job and can take risks now and I am working on building side incomes that'll match and exceed my job income.

@JustAnotherHuman33 2 жыл бұрын

Agreed to the title

@pebre79 2 жыл бұрын

Diworsifications is my favorite investment term

@motormania5250 2 жыл бұрын

Dropping knowledge bro

@projectfinance 2 жыл бұрын

I do my best. Thank you for watching.

@michael_the_chef 4 ай бұрын

Totally agree, in the beginning its important to take risks to build up wealth, i started with crypto investing, buy red sell green, now i am doing mostly more safe assets

@jamesperkins9097 2 жыл бұрын

What if you are 50 and broke? Think a guy will not make it? Following your content I learned to close my credit spreads before expiration so I contend it can be done.

@DKCC_713 2 жыл бұрын

90% in SAVA!!!!

@iLLWiLLx21 2 жыл бұрын

All in on AMC🚀🚀🚀🚀🚀

@projectfinance 2 жыл бұрын

Oh no

@iLLWiLLx21 2 жыл бұрын

@@projectfinance I’m only up 300%..you’re right that’s not enough!

@shiba_gaming999 2 жыл бұрын

SHIB🚀📈

@cryptojargon9328 2 жыл бұрын

Thanks~~~~

@GizmoGuy620 Жыл бұрын

Seems the best thing to put your money into is just that CASH! Then start playing the options game (smartly of course).

@qlth3620 2 жыл бұрын

Diversify didn't get me any where.

@darklordpeezy4813 2 жыл бұрын

Just started trading in May, lost more than I win so far but that is the story of my life, losing has always made me a better winner, right now I’m all in on this 1 stock because I believe it can go super high in the near future, A gamble…yes but I’m playing with a thousand dollars, a little here a little there didn’t work 4 me but that’s me…your truth might be my lie, what works 4 me may not work 4 u, with that being said if my gamble pays off, I will diversified with more money

@scotthenderson4376 2 жыл бұрын

Take the 10k put it in index for 5 years while you learn the game and do dumb stuff then take 7k out and roll the dice on aggressive play

@Arcaryon 2 жыл бұрын

Take away: I think the issue here is the degree of diversification. It has to fit. If you totally clueless, a huge diversity is your thing. Just spread your money across three different fonds and use it as an alternative to a bank or just buy gold. But if you think you know your stuff well enough, pick a few champions, inform yourself and keep an eye out for potential opportunities on the side.

@projectfinance 2 жыл бұрын

You nailed it

@rhoelg 2 жыл бұрын

The only problem is you are more likely to lose your $10k before you can make it $250k, only one out of 10 can do make it work, statistically speaking.

@rhoelg 2 жыл бұрын

S&P500 works but one must continue adding money regulary so compounding can do its magic!

@ThePopUpH8r 2 жыл бұрын

If “Charlie” just invested in SPXL wouldn’t he be just as volatile while still being diverse?

@projectfinance 2 жыл бұрын

SPXL doesn’t represent ownership of equities. It represents exposure to a leveraged daily % return of SPX, a basket of equities. It’s designed to be a trading/hedging instrument.

@ThePopUpH8r 2 жыл бұрын

@@projectfinance exposure is exposure. No need to be picky. Charlie could also accomplish the same thing buying call options.

@Thomasz126 2 жыл бұрын

Miss this dude!!! what ever happened?

@user-sg1qu8io6v 2 жыл бұрын

Open a margin account, take 4 x gross exposure, diversify 6-10 stocks and make an easy 25% return per annum. This can even be achieved with mature companys. Like that you can double your money in a year. With an investment of 20k, in year 5-6 you'll become Millionaire not considering taxes. This is a way being less aggressive and achieve the same results. I'm running two portfolios that compete with each other. One is a stable mature and the other aggressive growth expansion playground.

@countryboy3659 2 жыл бұрын

ATER😎

@theveggie13 2 жыл бұрын

Wouldn't Charlie be pounding in the extra cash during his prime working years into an etf like a vanguard total index fund. Then gamble with additional funds and pray to hit the 30%?

@DKCC_713 2 жыл бұрын

I don’t need sleep!!! I need money!!!!!

@oldbear6813 2 жыл бұрын

Hard pass on Twitter bro

@redrobin1193 2 жыл бұрын

Being in student debt that's higher than you can ever pay back is for idiots. Holding diversified companies that you believe in is not for idiots.

@projectfinance 2 жыл бұрын

Well said

@bronxp93 2 жыл бұрын

Not a great example with bezos and Musk. They own the companies you mentioned.

@projectfinance 2 жыл бұрын

That’s the point. Starting a business is a concentrated position. Their equity was worth zero and is now worth billions.

@Fairly_Reasonable_Investor 2 жыл бұрын

Cool. I feel less dumb by putting a $1000 into Shibacoin rn.

@projectfinance 2 жыл бұрын

Best of luck to you

@ryzen89 2 жыл бұрын

You make me smile

@nxet2669 2 жыл бұрын

You’re not saying do it wink wink

@rupok77 2 жыл бұрын

At present owning BITCOIN kills diversification!

@peteryu9866 2 жыл бұрын

@projectfinance 2 жыл бұрын

I can see what you're saying but in this case, I feel you're twisting what I said to villainize me. If you have 10% of a portfolio in ten assets and one goes up 5x, it will contribute to a 50% growth of your portfolio. If it goes to zero you lose 10%. Higher concentration = more volatile potential paths. If you have 1% of a portfolio in 100 assets and one goes up 5x, it will contribute to 5% portfolio growth. If it goes go zero you lose 1%. More diversification = less volatile potential paths. If these numbers are false and only an interpretation, please help me understand how.

@saurabhkulshreshtha8953 2 жыл бұрын

LoL.

@PlaylistProductions 2 жыл бұрын

Oh this video has found the root of Republicans vs Democrats personality types.. Republicans want to preserve and intensify.. Democrats want to experiment and explore..

@extraa8168 2 жыл бұрын

Wow your videos are usually good but this is terrible advice. The examples you give are Jeff bezos and Elon musk? Seriously? Why don't you also reference the millions of robin hood traders who yolo everyday and lose millions. When billionaires like Cuban and buffet talk about diversification, they have teams of professionals telling them what to make the big bets on. Your audience is investor novices watching finance you tube videos. This is irresponsible advice.

@projectfinance 2 жыл бұрын

I didn’t give any advice. I didn’t say yolo weekly options. Those people are reckless. I believe in diversification, but the math doesn’t lie. It’s only math.

@donagramonte 2 жыл бұрын

Allot of repetitiveness! One way to use up the time but you could have filled the time with some actual content we can use. I am a fan of yours but.....

@projectfinance 2 жыл бұрын

thanks for the feedback

@guyredares 2 жыл бұрын

I like you videos, but this one was lame

@projectfinance 2 жыл бұрын

What didn't you like about it?

@guyredares 2 жыл бұрын

@@projectfinance It was empty

@harrissimo 2 жыл бұрын

So you’re Mark Cuban? This is TERRIBLE advice for ordinary people. It is irresponsible for you to make a video like this.

@projectfinance 2 жыл бұрын

I didn't give any advice.

@harrissimo 2 жыл бұрын

@@projectfinance What a total cop out. You certainly were giving advice! Unbelievable. You’re in way over your head.

@salcuellar7551 2 жыл бұрын

It’s alright man… I’m sure she didn’t mean to hurt you 😅

@projectfinance 2 жыл бұрын

You have no idea what my investments look like. I literally said in the video "I'm not suggesting you go put all your eggs in one basket." It's basic math. Don't shoot the messenger.

@Josh-ed5ct 2 жыл бұрын

@@harrissimo Easy to criticize someone behind a keyboard, with no rebuttal, just criticism. No value in your comment.