MEBISODE: The Bear Market in Diversification | #536

Jun 4, 2024

Guest

Ed Thorp

This podcast features past guests like Ed Thorp, Richard Thaler, Jeremy Grantham, and more discussing the challenges and benefits of diversified portfolios during market downturns, analyzing asset allocation performance against the S&P 500, and exploring strategies for global diversification and risk management in investing.

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INSIGHT

Diversification’s Emotional Problem

Globally diversified, low-cost portfolios often felt crushed by the S&P 500 after the Global Financial Crisis.
Long stretches of consistent underperformance broke investor morale and drove many to abandon diversification.

ANECDOTE

Selling After The GFC Costly

After the GFC many investors sold out and stayed in cash, missing the massive 2009–2023 rally.
Stocks compounded ~15% annually from the March 2009 bottom, punishing those who capitulated.

INSIGHT

The 2009–2023 Performance Gap

From 2009–2023 many diversified allocations returned ~6–7% while the S&P 500 returned ~13.9% annually.
Diversified portfolios had lower volatility but underperformed nearly every year, hurting investor persistence.

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