12-28-2021, 10:17 AM
"Diversification is only a free good if one cannot identify mispriced securities.
Once the concept of mispricing is introduced, diversifying away from undervalued securities reduces a portfolio’s expected return. Instead of more diversification always being better, diversification becomes a trade-off: it lowers the risk but at the cost of also lowering expected return. We don’t want to dilute our best ideas any more than is required to be prudent." - Bill Nygren
- Scoot
Once the concept of mispricing is introduced, diversifying away from undervalued securities reduces a portfolio’s expected return. Instead of more diversification always being better, diversification becomes a trade-off: it lowers the risk but at the cost of also lowering expected return. We don’t want to dilute our best ideas any more than is required to be prudent." - Bill Nygren
- Scoot