CHAPTER 5
ASSET SELECTION: THE GOOD, THE BAD, AND THE UGLY
Diversification is protection against ignorance. Wide diversification is only required when investors do not understand what they are doing.
—Warren Buffett
WE ALL WANT AN INVESTMENT that will capture the highest possible risk premium while minimizing tail risk or drawdown. Risk premium is the reward we receive for the risks associated with a buy-and-hold strategy. In the preface to his classic book, Stocks for the Long Run, Jeremy Siegel (2014) writes, “over long periods of time, the returns on equities not only surpassed those on all other financial assets, but were far safer and more predictable than bond returns when inflation was taken into account.”
From 1900 through 2013, ...
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