Cramer on Diversification

Jim Cramer in "Stay Mad For Life" makes what I think is a very important point about diversification.

"The price of diversification is owning losers-they can't all go up at once. If you are running a diversified portfolio, you are going to have some losers on up days. In fact if they all go up at once, you probably aren't diversified enough, and when down days occur, you are going to get clocked something awful. Something won't be working if you are doing things right. Don't kick yourself; take it as a badge of prudence."

My take-diversification is a must in modern markets. Too often I've seen too many people put too many eggs in one basket. I have clients that still do this today and try as I will I can't talk them out of backing away from one particular stock or fund. Investments don't love you and the great wheel of fortune turns quicker in today's economy than most of us might think. We diversify by asset class and sectors depending on each client's unique profile within our system. One caveat to what Cramer says though. In a rip roaring bull market (anybody remember one of those?) a rising tide sometimes lifts all boats. That however is a signal to take an extra look at a portfolio because nobody is that smart or right all the time. At least nobody is that smart or right for those longer periods of time that a bull market can provide.