LESSON 33Diversify Prudently

One of the most valuable lessons I’ve learned over the years is that diversified portfolios of investments have the magic power to allow two people at opposite ends of a trade to both be successful investors, in spite of the fact that one believes the price of a particular asset is going up and the other has reason to believe it’s going down.

Consider my friend David Russell and me, for example. Our takes on oil could not be more different. As I write this in 2017, I think the bloom is off oil. I don’t only mean that some oil companies are going bankrupt tomorrow because of low prices. I also think that fossil fuel pollution, which is accelerating climate change, has put the future of the market itself into question. The year 2016 was the hottest year on record by a wide margin. Trump’s election may change the dynamics of oil prices in the short term, but climate change will determine the long term. I believe if we want to survive as a species, and lead anything like what we currently consider normal, civilized lives, we must put an end to fossil fuel use soon.

In the short term, Middle Eastern countries need to generate revenues to fund social programs to combat unrest, which forces them to increase their outputs. Meanwhile, thanks to the fracking revolution here in the United States, we now have the world’s largest oil reserves—and have replaced OPEC as the world’s largest oil producer. Foreign oil producers have lost their pricing power. With ...

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