Ep012: Does Diversification Alone Reduce Systematic Market Risk?

Welcome to the Broken Pie Chart Podcast Episode 12. In this episode Derek Moore discusses why diversification alone may not reduce systematic material stock market risk using the backdrop of the 2008 Financial Crisis. Plus, potential solutions using real hedging in portfolios. Key Takeaways: • What are the two main types of stock market investment risk? • What is single stock or concentrated stock risk? • What is systematic market risk? • What is diversifiable stock risk? • Why spreading investments between sectors or regions may not reduce risk in a material correction • Comparing investment returns during the 2007 to 2009 peak to trough in areas of the market • What typical advice from "experts" you tend to hear during market selloffs • How dividend paying stocks only provide so much protection against market selloffs • Strategies that have embedded hedges, floors, or buffers to reduce stock market risk • How bonds low interest rates may make them less appealing as a stock market hedge • Alternative investment strategies to manage systematic risk in markets Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Mark Cuban says "Diversification is for idiots" https://www.youtube.com/watch?v=u5Pp1HEKSPM Episode Talking About Buy and Hedge Strategies https://player.fm/series/broken-pie-chart/why-investors-need-a-protective-hedged-equity-strategy