Most investors pride themselves on their knowledge of a particular methodology or asset class. They put in tremendous hoursresearching stocks or perfecting a particular trading technique. Many investors falsely believe theirportfolio is well diversified and bulletproof because they have done therequired due diligence and purchased ownership in a mix of only the highestquality companies. Doing your homeworkis certainly a requirement in investment success however unless one understandscausation and correlation they will most likely suffer a substantial loss overthe long term.
We witnessed most diversification strategies get blown out of the water during the market crash from 2007-2009. The traditionalasset classes recommended by investment professionals to diversify one’s wealthdid not work. The markets for stocks,bonds, and real estate all seemed to collapse at the same time. We also saw that diversifying across bordershad little effect as well. The financialtroubles encountered in the United States soon rippled throughout the globaleconomy and international markets plunged in unison with the US. All of this in turn has caused companies toshed workers and after several years of record high unemployment it is causinggovernments to buckle.
Investors should take note of the correlation of all financial markets in today’s interconnected and global economy. In order to truly protect yourself from the new financial crisis you need to really think outside of the box and consider alternative investments that are isolated from the mainstream. Real estate, domain names, thoroughbred horses. and fine art are all great example of just such an alternative investment.