Despite near-unanimous endorsement among mainstream advisors,
the strategy of portfolio diversification has a huge, glaring
flaw: Namely, when large sums of liquidity begin to flow into
global investment markets, formerly disparate trends become strongly
correlated. And markets that go up together ultimately go down together;
in turn, the value of diversified portfolios goes down with them.For years now, Wall Street has tap-danced around the liquidity
risk. Here’s how former Citigroup CEO Charles Prince described
it in July 2007:
This
article was syndicated by Elliott Wave International and
was originally published under the headline New Report: It’s Dangerous to Diversify — Find Out Why.
EWI is the world’s largest market forecasting firm. Its staff
of full-time analysts led by Chartered Market Technician
Robert Prechter provides 24-hour-a-day market analysis to
institutional and private investors around the world.
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