The 3 Hidden Risks of Diversification

[Image] The 3 Hidden Risks of Diversification You need to hear this… You’ve probably noticed that I usually only alert one trade at a time. But the other day I heard a guy on CNBC say “You need to diversify to succeed in the stock market.” Nonsense. Here’s the truth… Diversification is for long-term investors. On the other hand, traders can hurt themselves by spreading themselves too thin. Today, I’ll tell you three reasons why diversification is overrated for traders (and explain why I think the general consensus is wrong). Keep reading to see what I’m talking about… The Big Problems with Diversification If you’ve ever watched financial news media or read a book about trading, you’ve probably heard about the (alleged) importance of diversifying your holdings. If you’re a set-it-and-forget-it index investor, this advice might be better placed. If you aren’t actively trading or investing, taking a more passive approach, and saving for your future, it’s fine to diversify and tune out. But if you’re reading this, you’re not interested in long-term, passive investing. You want to be a great trader, and I don’t blame you! And for traders, diversification is an incredibly dangerous game. Here’s why… Focusing on Too Many Positions At Once Short-term trading requires much more attention than passive investing. And this is even more true in the options market… Managing a diversified portfolio of short-term options can be extremely complex. Unlike long-term investments, options require close monitoring and quick decision-making. Each option has its own set of variables, such as strike price, expiration date, and ‘The Greeks.’ Keeping track of these variables across a diverse range of options can be challenging and time-consuming. If you diversify too much as a trader, you’re throwing darts. It’ll be hard to pay attention to the play that matters most. Let me draw an analogy… I’ve told you before that I love playing poker. In online poker, you can play multiple tables at once. But for beginners, this is incredibly overwhelming. You must understand the strategy of every hand on every table simultaneously — a difficult thing for your mind to handle. This is exactly what happens when traders focus on too many positions at once, it’s like multi-tabling several poker hands. Your focus will invariably shift from position to position, leaving you at risk of missing the best play of the day. This is exactly why I want you to stop diversifying and start trading the best setups only. You Can’t Get Aggressive on Perfect Setups Join me for a hypothetical… Let’s say you’ve diversified your trading. You have five open positions, each making up 20% of your portfolio… Then, in the middle of those trades … an even more ideal setup comes across your screen. Your capital is tied up, so what do you do? You’ll have to make a decision … cut the trades you’re already in to enter the new setup, or miss the intriguing five-star play entirely. This is called opportunity cost — something you want to avoid. Engaging in a diversified set of trades requires significant time and resources. These positions might come at the cost of missing out on more lucrative, focused trades. This isn’t ideal. It would be much better to avoid the five so-so trades entirely and get aggressive on the very best one. You’re Subject to Higher Transaction Costs Unlike trading common shares, options trading usually isn’t free — there are commissions involved. Sure, there are exceptions, like Robinhood, which offers free options trading (at the cost of trading on a mediocre platform). But if you want to avoid Robinhood, you’ll most likely pay between $0.40-$0.65 per contract. This might not sound like a lot, but it adds up quickly, especially if you’re trading dozens of positions. If you’re trading a small account, paying $0.65 for hundreds of contracts will eat up your capital faster than you imagine. So, even beyond the opportunity cost you may take on by trading too many contracts, you have to pay additional upfront commissions. This is yet another reason to be a ‘sniper’ over a ‘gunslinger.’ Diversifying too much as a trader can cost you opportunity, capital, and mental capacity. Closing Thoughts Passive investing is easy — that’s why everyone and their Grandma does it. If you wanna make boring, 9% annual returns — simply buy an index fund and forget about it. But, if you’re reading this, you don’t want to be an index investor. Your goals are bigger than normal returns. And to make extraordinary gains, you must exercise the skill and discipline required to avoid diversifying too much. As always… Stay Street Smart, Jeff Zananiri P.S. Veteran trader Ben Sturgill’s proprietary scanner is going HAYWIRE right now! And if you’d like to discover the EXACT trades Ben has spotted that could indicate insider positioning for an upcoming move… [CLICK HERE NOW]( to SAVE YOUR SEAT for Ben’s URGENT LIVE BRIEFING TOMORROW, December 4 at 11:45 a.m. EST!   66 West Flagler Street STE 900 Miami, Florida 33130 United States [Facebook]( [Twitter]( [Instagram]( [YouTube]( [Click Here to Unsubscribe]( **Our gurus teach skills others have used to make money. Any results displayed are extraordinary and are not typical and will vary from person to person. For more info read our [Earning Claims Disclosure]( About: Making money trading stocks takes time, dedication, and hard work. My goal is to teach you how I have succeeded in the market, but you may not achieve my results. Remember, there are risks involved with investing, including the potential loss of money. We are strongly committed to protecting your privacy and providing a safe & high-quality online experience for all of our visitors. We understand that you care about how the information you provide to us is used and shared. We have developed a Privacy Policy to inform you of our policies regarding the collection, use, and disclosure of information we receive from users of our website. Our Privacy Policy, along with our Term & Conditions, governs your use of this site. By using our site, or by accepting the Terms of Use (via opt-in, checkbox, pop-up, or clicking an email link confirming the same), you agree to be bound by our Terms & Conditions and our Privacy Policy. If you have provided personal, billing, or other voluntarily provided information, you may access, review, and make changes to it via instructions found on the Website or by replying to this email. To manage your receipt of marketing and non-transactional communications, you may unsubscribe by clicking the “unsubscribe” link located on the bottom of any marketing email. Emails related to the purchase or delivery of orders are provided automatically – Customers are not able to opt out of transactional emails. We will try to accommodate any requests related to the management of Personal Information in a timely manner. However, it is not always possible to completely remove or modify information in our databases (for example, if we have a legal obligation to keep it for certain timeframes, for example). If you have any questions, simply reply to this email or visit our website to view our official policies.