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Put the Proven Power of Diversification on Your Side with Lex Sokolin

Background: Lex Sokolin

  • Futurist and entrepreneur
  • Global fintech co-head at ConsenSys
  • Former CEO of NestEgg Wealth, a roboadvisor
  • Held investment management roles at Barclays, Lehman Brothers and Deutsche Bank
  • Regular contributor to The Wall Street Journal, The Economist, Bloomberg and Reuters
  • JD/MBA and a BA in economics and law

Lex’s worst investment ever

  • Won university stock-picking contest
  • Joined analyst program at Lehman Brothers as fresh graduate in 2006
  • Staff 401K matched in company stocks
  • Gordon-Gekko type manager invoked team spirit, told staff to invest in Lehman’s stock
  • No breaks for Lehman’s in US bailouts
  • Company stock and Lex’s 401K go to zero

Lex’s takeaways

  • Overconcentration in any position exposes investors to great idiosyncratic risk
  • Diversification in portfolio construction is answer
  • People are not reliable sources of information

My takeaways

  • Benefits of diversification
  • “Diversification is the seat belt and blending in some sort of other instruments, such as bonds for example, is the airbag”
  • It’s hard to rely on humans for great info
  • It’s also hard to rely on machines, or charts or data, to give you correct information

Actionable advice

  • Figure out your goals – Why are you investing?
  • What are you trying to get out of it?
  • How will you behave when different scenarios play out in your investment’s performance?
  • What kind of investor are you?
  • Do you want to delegate that to someone who will make you feel secure?
  • Or do you want to do it yourself?

My Worst Investment Ever six main categories of mistakes:

  1. Failed to do their own research
  2. Failed to properly assess and manage risk
  3. Were driven by emotion or flawed thinking
  4. Misplaced trust
  5. Failed to monitor their investment
  6. Invested in a start-up company

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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.