Investors, If You Can Predict The Future, You Don't Need To Diversify

Diversification, Not Needed If You Can Predict The Future

by: Brendan Magee

Investors spend a great deal of time dealing with uncertainty. What will the market do this year? What are the winning stocks going to be? What are the losing stocks going to be? When is the next crash coming, and when should I get out of the market? These are just a few of the many uncertainties investors have to deal with on an everyday basis. Some turn to professionals to handle the job and some do it themselves with the help of what ever research they think best.

Let me tell you who doesn't have to deal with any of this, people who can predict the future. If you know what is going to happen tomorrow, next month, the next year, the next 20 years, you have no uncertainty to deal with. Matter of fact, if you know what is going to happen in the future you have no uncertainty at all. You know what and when it is going to happen.

Imagine for a second if you were one of those people. What would your life be like? How much money would you be making on a consistent basis, if you knew when the next market crash was coming? How much would you be worth if you knew who and when the next Microsoft was going to pop up. You would be worth trillions. Work would be a thing of the past. What ever you wanted, when ever you wanted it,would be at your finger tips. You could have a tremendous impact on any cause or charity you deemed worthy. Politicians would be calling on you to support their candidacy and you could play a major role in the political landscape of the world. Sounds good doesn't it!

Now, how many of us actually believe/know we can predict the future on a consistent basis? If you are in your right mind, you would not stand up and say you have this super human skill. By the way, if you did, there's nothing wrong with that. You could do a lot of good for the world and yourself. Predicting the future just isn't one of the skills the Good Lord blessed us mortals with. However, how many of us go about our investing as if we or someone else can predict the future? Many more than would actually admit it.

How many of us believe, we or someone else, can spot a trend in the market? Lots of people.  I talk to investors every day, and read and listen to countless analysts on television on a daily basis. Based on what they have read and seen they tell us what is going to be happening in the stock market. When you take away the fluff, they are telling us or themselves they can predict the future. Their actions, though, betray their beliefs.

Case in point, a woman I was talking to this week told me she could predict the future. She knew what the trends were and based on that she knew which stocks to invest in. She told me she had a portfolio of some 30 stocks and ten mutual funds in her portfolio, but I had a question. I asked her if she knew what stocks were going to do well, why she needed to have 30 as well as 10 mutual funds? Why would you need a broker? Why couldn't she just every year pick the the stock that was going to be the top performing stock and invest all her money in that one stock?

 Imagine how wealthy you would be if every year you owned the top performing stock? Bill Gates would be your neighbor. Her reply, "That wouldn't be diversified." No kidding! Now what she or anyone else with her ability to consistently predict the future is failing to see is, if you can predict the future you don't need diversification. There isn't any risk of uncertainty if you can predict the future.

The lesson here is this. If you cannot and you know that you, nor anyone else, can predict the future don't do any thing with your money based on someone's predictions (This means yours as well). Learn what diversification really is and how it truly works. Now, if  you can predict the future and have a 50 year history that backs up that ability, please call me and I will give you every dime I own and ask you to let me benefit from your superhero powers.I will gladly cut you in on a portion of the profits.


Brendan Magee is the owner and founder of Inevitable Wealth Coaching. With questions or comments e-mail brendan@coachgee.com or call 610-446-4322. For more educational material go to www.coachgee.com.