A Different View on Diversified Portfolios

Physician's Money Digest, January31 2004, Volume 11, Issue 2

In a recent article in SFO Magazine, Sam Seiden, a research analyst, challenges the common belief that a diversified portfolio is a proven and safe approach to investing. Seiden recommends that watching the market for changes in supply and demand, and buying and selling as a result of those changes, is a less risky approach that will produce more rewards.

Because investors with diversified portfolios have their capital spread between separate investments, they feel their money is safe. However, Seiden suggests that most markets are affected by the same highs and lows. Therefore, all stocks within the diversified plan will potentially drop at the same time. An investment in a diversified portfolio only appreciates when prices go up, limiting potential growth to long-term up swings in the market and increasing the risk of an investor retiring during a down swing.

When an imbalance of supply and demand occurs, the opportunity for high returns is great. Seiden suggests investors identify the market with the most imbalance and invest there for the greatest profit. Traders should take action each time the supply and demand nature of stocks change, transferring money into bonds when the price of stocks is low and vice versa. Investors beware: For busy physicians who don't have time to closely monitor the market, this strategy may be too risky to execute.