Pigs get fat, hogs get slaughtered.

I love bacon. I like it just a little bit crispy. I like it on salads, on burgers, with eggs, without eggs, just plain, doesn’t matter. As a matter of fact, I think I’ll have a BLT tonight. The problem with bacon, like a lot of other things I like is that too much of it isn’t good for me.

The same holds true for your finances. Investing in anything involves a certain amount of risk and the more you put in one particular investment, the greater your risk becomes. Enron was an energy and services company based in Houston Texas and founded in 1985. Before its bankruptcy in 2001, Enron employed of 20,000 people, with claimed revenues in 2000 of $101 billion. Fortune named Enron America’s Most Innovative Company six years in a row. Innovative was a gross understatement. At the end of 2001 it was revealed that Enron’s reported financial condition was sustained by an institutionalized, systemic and creatively planned accounting fraud. The price of Enron stock dropped from $90 in August 2000 to 0 in December 2001. Unfortunately many of the Enron employees had all of their 401(k) invested solely in Enron stock. They not only lost their money but also their jobs. OUCH!

Greed is the emotion that takes over and causes people to get too many dollars in one place. It happened with gold in the early 1980’s; tech stocks in the late 1990’s; real estate in 2006-2008, and most recently in cryptocurrency. It wasn’t too long ago that Bitcoin was at $50,000 a coin and now it’s under $20,000. I have been through all those times and I know people who went in big in gold in the 1980’s and got crushed. I saw people blow up totally good investment portfolio’s to go 100% into tech stocks in the late 1990’s. One of our nation’s largest and most respected investment banks, Lehman Brothers went bankrupt in 2007 because of their heavy investment in risky real estate loans. The picture of Lehman employees all dressed in nice suits and business attire walking out of the building carrying boxes with their personal possessions in them is still an image I can’t forget.
Then, of course, there is Bernie Madoff, a financial advisor who ran the biggest Ponzi scheme in history, totaling $64.8 billion. Madoff promised stellar returns so people flocked to him with their money. Thousands of investors turned over all they had and Madoff used it to fund a lavish lifestyle. He pleaded guilty in 2009 and died In prison in 2021. Of the $65 billion approximately $4 billion had been recovered. Most investors lost everything.

Diversification is the weapon that I suggest you use to battle greed. Having your investments diversified between low risk and higher risk; diversified between asset classes; diversified between types of industries and diversified between time frames (long term and short term) will help your portfolio weather the storms that blow through from time to time.

I’d like to close this blog with a quote that I have sitting on my bookcase.
“Diversification is the conscious choice not to make a killing in return for the blessing of never getting killed.” Nick Murray