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Huge diversification list in Wall Street Journal

Posted by John Reed on

There is a wealth of info in the WSJ including in pages of numbers. Occasionally, I focus on one that I never scrutinized before. Today I noticed what is apparently a quarterly feature.
The first quarter ended yesterday.

Track the Markets: Winers and Losers

It is titled “Track the Markets: Winers and Losers.” It is a list of selected stock indexes, bond ETFs, currencies, and commodities. That is a rather eclectic collection of assets. The are ranked by percentage gain in value during the quarter. Here are the top five and bottom five:
Orange juice 30.57%
S&P 500 Information Tech 21.49%
NASDAQ 100 20.49%
S&P 500 Communications Services 20.18%
NASDAQ Composite 16.77%
lean hogs -14.20%
Argentine peso -14.43%
Pakistan rupee -20.32%
Nymex ULSD (Ultra Low Sulfur Diesel) -20.40%
Nymex natural gas -50.48%
I used the word eclectic. Very clever. But the more appropriate word is one of the most basic principles of sound investing: DIVERSIFICATION. And those four index funds in the top five represent diversification within diversification or diversification squared. Actually, when you diversify using multiple index funds, you need to watch out for duplication which is UNdiversification.

An all asset categories index fund?

Is there an index fund that encompasses all the assets on this 120-asset list? Not that I know of. It would be extremely difficult to operate as a practical matter. And you would have to eliminate the duplication that would come from multiple index funds, but if you could do it, such a fund would be better diversification than says the Schwab 1,000 which is considered great diversification by the stocks-only “experts.”
The idea that a big stock index like the Russell 3,000 is the ultimate diversification is ridiculous. It’s all stocks. If you think diversification is something you do over all 3,000 stocks, you do not understand the definition of the word. I recommend that you diversify over multiple non-correlated asset categories, not all of them.
Are assets that I recommend on this list? Yes. I recommend a broad index fund like the Schwab 1000.


All seven of my recommended foreign currencies are in the list, (AUD, CAD, CHF, DKK, NOK, NZD, SEK) along with another dozen or so that I do NOT recommend. The ones I do NOT recommend, like the Argentine peso, should not be on ANY list in any serious media service. Argentina’s government is a joke and its currency is a century-old-and-counting joke.

NO bonds or ETFs

They have bond ETFs in the list. I am leery of ETFs. They are side bets on the securities markets, like race track bets. I prefer you owning the horse in the race and collecting the prize money. That is a real transaction. The various securities, including owning stocks, bonds, or commodities or optioning them are real and serve real commercial purposes. ETFs seem like gambling bets, only with no odds to consider, like crypto.
I am dead set against bonds, including TIPS. There is a TIPS ETF fund on the list. It returned 3.58% which is LESS THAN inflation if it is the annualized return.

Buying a bond means you believe there is no such thing as inflation

To buy any bond or to recommend buying one implies there is no inflation. That is absolutely false which, in turn, means investing in bonds is stupid and recommending them is a violation of fiduciary duty and/or a repudiation of the advisor holding himself out as one who has greater than average understanding of the markets than a layman.

Foreign Stocks

They have foreign stock index funds on the list. I cannot make a court case against them. I can against bonds. But it is a fact that the US is the most capital friendly nation legally. Singapore is up there and Hong Kong used to be. Hong Kong illustrates the problem. The Communist Party took it over in violation of promises they made to get UK to cede Hong Kong to Communist China.
The various other foreign stock markets are less friendly to all seven pillars of prosperity: free markets, the rule of law, stable currency, property rights, minimal taxation, minimal regulation, and minimal creation of uncertainty due to overly frequent changes in laws. I also think the nations outside of Europe and Canada are racist and therefore hostile to the predominantly Anglo US. And I think Europe and Canada are somewhat hostile to the US because of envy and cultural snobbery in Europe.


They have many commodities on the list. Those are hard for you or I to own. The only commodities I recommend are coins with a high melt-value-to-face-value ratio. They are NOT on this list. You should own them because they do not require assay and they are durable and do not spoil like, say, lean hogs.

Household necessities stockpile

I recommend stockpiling all the household necessities like food, fuel, medicine, hygiene products, paper products, home office products. WSJ is too big time to make such a recommendation, but they could have and should have put the Consumer Price Index in this list and that would sort of represent the household necessities.

Real estate is the best and not on the list

The main asset missing, and this is egregious, is real estate. The only real estate I recommend is your principal residence. WSJ could easily have put the Case-Shiller or FHFA index on the list.

Principal residence

I also recommend highly that you not only get the most expensive, one-acre-or-less, 3,500-square feet-or-less principal residence with a fixed-rate mortgage that you can safely afford. The mortgage is what I call the world’s greatest short. It is not technically selling an option short (done by selling stock that you do not yet own for a set price but that you do not have to deliver until a future date) which is the usual meaning of a short. But the fixed-rate mortgage is a way to bet on inflation and it is much better than an option which is a short in duration and leaves you open to unlimited losses.
The fixed-rate home mortgage is a heads you win, tails the lender loses situation because in inflation and interest rates go up, you win big. But if they go down, you refinance out of the mortgage to a lower interest one.
This 120-diversified-asset WSJ list is an interesting juxtaposition and an incomplete, but better than usual, illustration of wise diversification.

Buy it then forget about it

The fact that this is quarterly violates another basic tenet of wise investing: forget about it. You are supposed to not only buy index funds, you must also forget about them after you buy them. Refrain from looking at the values daily or monthly or quarterly because they are long-term investments. The phrase “short-term investment” is a contradiction in terms. For one thing, the transaction costs and gains taxes will kill your return.

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