Diversification

What you'll learn

• ✓Explain naive diversification

Lessons

1. 🥚
   Eggs and Baskets

   The cliché, and why it actually works
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2. The Math of Mixing

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3. What Diversification Can't Fix

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4. The Home Bias Trap

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5. Final Boss: The Concentration Trap

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Sources

All content is drawn from the sources below. We deliberately avoid unverified material.

• Portfolio Selection
  Harry Markowitz, Journal of Finance (1952) · academic
  Foundational paper on diversification, variance reduction, and imperfect correlation.
  https://www.jstor.org/stable/2975974
• Investments
  Bodie, Kane, Marcus (McGraw-Hill) · book
  Standard textbook for systematic vs idiosyncratic risk and the diversification curve.
• How Many Stocks Make a Diversified Portfolio?
  Meir Statman, Journal of Financial and Quantitative Analysis (1987) · academic
  Origin of the ~30-stock rule of thumb used in lesson 3.
  https://www.jstor.org/stable/2330969
• Investor Diversification and International Equity Markets
  Kenneth French and James Poterba, American Economic Review (1991) · academic
  Empirical foundation for the home bias claim used in lesson 4.
  https://www.nber.org/papers/w3609
• Nikkei 225 historical index data
  Japan Exchange Group · data
  Source for the Japan 1989 peak and recovery timeline cited in lesson 4.
  https://www.jpx.co.jp/english/
• Global equity market capitalization by region
  World Federation of Exchanges · data
  Used for the 'US is roughly half of global market cap' figure in lesson 4.
  https://www.world-exchanges.org/
• Modern Portfolio Theory and Investment Analysis
  Elton, Gruber, Brown, Goetzmann (Wiley) · book
  Reference for the formal two-asset variance derivation behind the sunscreen-and-umbrella example.