Diversification is not just a myth – it’s Wall Street’s biggest, longest-running scam.
Two kinds of people will tell you to diversify: People who don’t know what they’re doing…
Or the folks on Wall Street trying to separate you from your money.
The pros want you diversified for two reasons:
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Diversification means you’re buying a bunch of positions you don’t need. And when you do, they’re making out like bandits on fees and commissions (or more likely these days, selling order flow).
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Diversification also means you’re not focused on the market’s biggest trends. So your profit potential is limited. Your money is tied up in gold, bonds, inverse funds, commodities, income, and whatever else. And Wall Street pros have the market’s best, most profitable trades in a chokehold.
Don’t believe me?
The biggest stocks prove my point…
The Best Argument Against Diversification
When it comes to Wall Street, it’s best to ignore what they say and watch what they do.
If you do that, you’ll soon realize they’ve lied about diversification’s importance.
The so-called Magnificent 7 are a great example… They include Amazon, Alphabet, Apple, Microsoft, Nvidia, Meta Platforms, and Tesla.
In 2023, these 7 stocks were responsible for 71% of the overall market’s total gains for the year. In fact, they were so dominant that they changed how most hedge funds invest.
A hallmark of hedge funds has always been portfolio management that is diversified and dynamic. And all that diversity and activity adds up to – theoretically – market-beating returns.
But since the Mag 7 emerged, hedge funds have narrowed their focus in a big way…
A report from Goldman Sachs examined the holdings of 735 funds with a whopping $2.4 trillion in assets under management. It found that the Mag 7 made up 13% of the overall long positions in hedge fund portfolios. That percentage had doubled since the start of 2023.
And while hedge funds slightly eased back from their Mag 7 holdings at the beginning of this year, those seven stocks are still responsible for 45% of the S&P’s return through the end of the third quarter.
And a Financial Times article this year gives another glimpse of the situation:
Goldman’s analysts note that their measure of hedge fund density – the weighting of a fund’s 10 biggest positions compared to its overall portfolio – has hit 72 per cent (which… looks like a new record).
So while Wall Street has been telling retail investors to diversify for decades, they pile in whenever the trend is clear – to hell with diversification.
And breaking away from this conventional wisdom can help you unlock the true profit potential of any market.
That’s why I created One Ticker Trader…
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Free Trading Resources Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out. |
One Trend, One Ticker
My One Ticker Trader service identifies the market’s biggest trends and helps traders move in and out of a single ticker at a time to maximize their profits.
For example, in June we saw that the Dow Jones had been underperforming the S&P 500 and the Nasdaq (which had both been rallying strongly)…
Like any other relationship that gets overstretched, this was setting the SPDR Dow Jones Industrial Average ETF Trust (DIA) to rally and “catch up” to these other major indexes.
So to capture that potential bounce in DIA, we bought a call option. (A call option increases in value when the underlying asset rallies.)
We timed the entry of our trade to coincide with an upswing in momentum (red circle in the chart below). This swing locked in DIA’s short-term low.
And as the chart shows, the trade went our way right from the start…
SPDR Dow Jones Industrial Average ETF Trust (DIA)
Source: eSignal
DIA rallied from our entry and was in good profit within just a few days.
When DIA retraced off its opening high on June 3, we decided to lock in some profits by closing half our position for a 55.4% gain.
From there, our remaining position moved even deeper into profit.
Then the Relative Strength Index (RSI) started pushing up against resistance (green line). So we decided to close out the remaining half of our trade just two days later for a 78.5% gain.
Altogether, that worked out to a blended 66.9% gain in only six days.
And that wasn’t where things finished there for DIA…
After a pullback, we opened another call option position on DIA on June 14, which we closed out just six days later for a 100% gain.
Then the Nasdaq looked overbought coming into July, so we switched our focus back to that index. We were able to profit from two separate put option trades on the Invesco QQQ Trust, Series 1, which tracks the Nasdaq. (A put option benefits from the underlying asset falling.)
These enabled subscribers of One Ticker Trader to bank blended gains of 69.3% and 127.2% in just 16 and 9 days, respectively.
This kind of quick profit-taking is key to the success of One Ticker Trader… and it’s something we’re aiming to repeat from now into 2025.
We’ll do that by focusing on one ticker at a time… And we’ll follow Wall Street’s lead – and aim for the biggest trends in the market.
If you’d like to learn more about how to join us, you can get all the details right here. I recently recorded a broadcast that explains our strategy clearly… and shares a special offer for anyone interested in getting started.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict