Get all cash out of the bank

[Boy Wonder]

To make this clear to anyone interested in this debate, I'll prove my point: If you invest in three companies and we'll assume for the sake of argument, they're all successful. In that case it's very unlikely they'll all succeed to the same degree. Therefore you didn't make the right decision, because if you'd invested in one(the most successful) you'd have got a bigger return than diversifying in three.

Strange way to prove a point- let's 'assume for the sake of arguement' (why not, we can make any rules up this way!) that only one is successful and two fail - if you've invested in all three you have a return, if you just invested in one there's a 2/3rds chance your investment has gone! Unless of course you have a crystal ball that you're not sharing with the rest of us!

[Bladerunner]

If you really want to cack yourself read the Robert Prechter book Conquer The Crash.

He was a little early (2002) but he predicted the failure of Fannie Mae and Freddie mac in the US and said major banks that nobody would think of would go bankrupt.

He is a follower of the Elliot Wave theory and says we were at the top of the fifth and final wave of an economic super cycle that began in the 1930s and an even bigger super cycle that began in the 1800s. We are now correcting and the downside will be worse than the great depression lows.

[Wheeze]

Fascinating debate. Thanks TheHeathens for your perserverance with an informed viewpoint...I'm kinda glad my pension fund (pathetic though it is) is managed by sele**ia.

Interesting point about Prechter, Bladerunner. I wikied him and found:

While Prechter has his admirers, he has been criticised by media and pundits. For example, the Wall Street Journal ran a page one article in August 1993 with the headline, "Robert Prechter sees his 3600 on the Dow--But 6 years late," in reference to Prechter's 1987 forecast for the Dow Jones Industrial Average.[15] Technical analyst David Aronson wrote:

The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong.[16]

Recently, Prechter has missed the latest portions of the rally in gold and oil. In July 2006 he asserted that gold had reached its peak and that oil, then around $70 bbl, also had peaked in price. His analysis was clearly flawed, as oil in late May 2008 reached $135 bbl and gold was at $925/ounce. [17]

So maybe we don't have to cack too hard?? Whats your view Heathens?

[TheHeathens]

Fascinating debate. Thanks TheHeathens for your perserverance with an informed viewpoint...I'm kinda glad my pension fund (pathetic though it is) is managed by sele**ia.

Interesting point about Prechter, Bladerunner. I wikied him and found:

While Prechter has his admirers, he has been criticised by media and pundits. For example, the Wall Street Journal ran a page one article in August 1993 with the headline, "Robert Prechter sees his 3600 on the Dow--But 6 years late," in reference to Prechter's 1987 forecast for the Dow Jones Industrial Average.[15] Technical analyst David Aronson wrote:

The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong.[16]

Recently, Prechter has missed the latest portions of the rally in gold and oil. In July 2006 he asserted that gold had reached its peak and that oil, then around $70 bbl, also had peaked in price. His analysis was clearly flawed, as oil in late May 2008 reached $135 bbl and gold was at $925/ounce. [17]

So maybe we don't have to cack too hard?? Whats your view Heathens?

Ha ha, I'm not getting involved in this one - I've got too much work to do today! I'll give you a few of my predictions over the next 12-18 months though:

Oil : Will stabilise at roughly the price it is now; the demand will drop due to world recession, and OPEC won't (can't??) increase output.

Gold : Will rise over the next 12-18 months. Adjusting for inflation, the last peak in 1980 is worth about $2220 / oz. We're currently just under $1000 / oz. Plus, we have diminishing output, extra demand from india and China, a weak dollar, and struggling financial markets.

Good choice in pension provider by the way! They often look more expensive than other providers because they disclose more fees than most others, but they're one of the cheapest in the market.

[Bladerunner]

Ah Wheeze I see you've done the rather basic Wikpedia search and just decided to copy the critisism part? Read the book and tell me what you think. I said he was early, 5 years early, but he's now being proven right. He also called the bottom of the Dow in the early 80s and has been more right than wrong, particularly and most importantly on major turning points.

This is a major downturn that has already started and unfortunately whatever the central banks do can not change the eventual outcome. This boom has been built mostly on credit and any economy built on credit grinds to a halt when that credit is removed from the system. We are now starting a massive deleveraging that can not be stopped. When the BOE reduces interest rates it won't be passed on to consumers as all banks will do is rebuild their balance sheets as they do not want to lend. The banks are so scared they won't even lend to each other, the London Inter Bank market has been dead for a year now and the BOE is filling the role. Thats why Northern Rock, Bradford and Bingley and HBOS are all technically bankrupt. There are at least 4 other financial insstitutions that are only surviving because major banks are funding them at the request of the Treasury. Make no mistake this is very serious.

Consumers won't be able to obtain more credit (look at mortgage rates, how many new loan flyers are you getting through the post v a year ago?) those that can afford to will have to pay down their credit card debts, the rest will be declared bankrupt. In the meantime a recession will hit, unemployment will rise, there'll be more and more defaults on mortgages and we will spiral downwards.

Sorry to sound so downbeat but thats the truth of the matter.

[Grouse]

But, apart from that, everything's OK.

[Margarine]

Mustn't grumble.

[CL]

Chucking in my twopence worth, I too am a financial adviser . Theheathens explanation may be long winded but its bang on the money. Think of diversification as improving the odds but lowering the maximum payout. Betting on black in roulette is a more 'diversified portfolio' than betting everything on zero

Right so if it's improving the odds it's a gamble, which is exactly what I've been saying. If you knew the number 5 was going to land on the next spin, you wouldn't put your money on 5,6,7,8 and 9. So diversification is a tool of impotence and ignorance.

Besides betting on black doesn't give better odds in the long run. In the long run the person betting on black(diversifying) will lose exactly the same amount of money as the person betting on zero(not diversifying). This is the gamblers fallacy I mentioned.

The person gambling on black will also find that when zero comes in he loses half his money.

[TheHeathens]

Right so if it's improving the odds it's a gamble, which is exactly what I've been saying. If you knew the number 5 was going to land on the next spin, you wouldn't put your money on 5,6,7,8 and 9. So diversification is a tool of impotence and ignorance.

Besides betting on black doesn't give better odds in the long run. In the long run the person betting on black(diversifying) will lose exactly the same amount of money as the person betting on zero(not diversifying). This is the gamblers fallacy I mentioned.

The person gambling on black will also find that when zero comes in he loses half his money.

You don't know that number 5 is going to win - that is more of a gamble than betting on black. You have a 1/36 chance of winning big, but a 35/36 chance of losing all your money.

The rest of your argument is pointless because your basis to it is flawed. Gambling and investing are not the same because investing is not based on random conditions

[CL]

Strange way to prove a point- let's 'assume for the sake of arguement' (why not, we can make any rules up this way!) that only one is successful and two fail - if you've invested in all three you have a return, if you just invested in one there's a 2/3rds chance your investment has gone! Unless of course you have a crystal ball that you're not sharing with the rest of us!

I thought you didn't take financial advice from forumites? I'll assume you've changed your mind.

If you've invested in one or more companies without understanding what you're doing(gambling) then you may make gains or you may lose everything, depending on how those companies perform, and regardless of whether you invest in one or more.

Now if you know what you're doing, why invest in three companies when your projections point to greater success in one. Only in the case where your projections point to an equal success rate in several of the best companies, is there any justification in diversifying. That's hardly ever, just look at current share prices.