In the world of investing, information isn't just vital – it's a weapon.
If you wield the weapon effectively, you win. You make money. You profit.
But if you don't, can't or fail to wield the weapon, then you lose.
And more often than not, information is used as a weapon against the average investor.
For instance, one of my biggest beefs with the mainstream financial media, the mutual fund and 401(k) industry is the information they give us about diversification.
In most cases, what we hear from these folks is the opposite of diversification. For instance, your average mutual fund manager will tell you that diversification means owning a blue chip fund, a growth fund and an income fund.
They might also tell you to own bonds if you're old, and high risk stocks if you're young – with almost no intelligent regard to whether it's a good time to buy bonds or stocks.
As I've been pointing out for the better part of 2 years, we're in a terrible period to be a buy-and-hold stock investor. The broad market has gone exactly nowhere for 12+ years.
So, unless you were lucky or insightful enough to buy at the market lows of 2002 and 2009, you probably haven't made much, if any real stock market gains in more than a decade.
I do like asset class diversification – which seems to work well for the exact reason that over the long-term, most asset classes move inversely to each other. Stocks rise when bonds fall. Gold drops when stocks outperform, etc.
But that type of diversification typically means avoiding the entire stock market for months if not years at a time – which is EXACTLY the opposite of all of the advice you get from the supposed "best and brightest" in Wall Street, on TV from folks like Jim Cramer and in The Wall Street Journal.
Buy and hold. Average in. These two phrases simply failed an entire generation of stock investors in the past decade.
Should you be diversified?
Absolutely. But you should be diversified in asset classes which outperform. That means ignoring the broad stock market right now. It means focusing on hugely successful commodity investments and companies.
It means buying gold, silver, platinum, oil, coal, natural gas and agriculture companies.
Being diversified into a broad market index does nothing but sap your portfolio's ability to succeed.
Being diversified between growth, blue chips and income is not a possibility, because these three categories of stocks are still hugely correlated. If blue chips hit the mat, you can bet that growth stocks are going down, and income plays aren't far behind.
Diversification means having access to different aspects of sectors that are actually growing and succeeding.
Now, you have to ask yourself: why is my mutual fund manager is giving me terrible and wrong information on diversification? It's simple – they're selling their book just like any other person in the financial world.
And admittedly, I'm selling my book too. But if you don't like my book, you can get your money back. Try getting your fees back from your mutual fund manager if their advice turns out to be useless.
What is my book right now?
Well, I'm currently excited about an opportunity in a unique California gold company. They pay a huge dividend of over 8% (unlike most gold companies which pay no dividend) and they're unlike any other gold company in existence. Basically, they provide a singular service that no other publicly traded company on earth provides.