Diversification - Natural Selection

["Tom Cathey" <K1JJ@xxxxxxx>]

Hi Everyone -

I saw a number of good posts on diversification, and thought I'd add my
thoughts too.

I've personally found that diversifying into a large number of positions
seemed to have no effect on risk over time.

I trade 22 different commodities at this time.

I realize this sounds simple (like my brain) but here it is:

What I do is analyze each commodity on it's own merits. If, after going
through the list and screening them all, I come up with 8 "strong"  and
different trades, I take them all......up to my margin limits.

If after screening, there is only one candidite, I take only that one.

The point I'm making is that I feel it's a mistake to add more questionable
positions into your portfolio just for the sake of "diversification".
Rather, let your own natural criteria of selection dictate whether you will
have a lot or a small number of positions that holding period.

Random events being what they are OVER TIME, it is just as easy to have ALL
positions going for or against you at any one time.  

The only exception (less important) that may have merit is to have a
balanced short and long mix...ONLY IF the individual trades stand strong on
their own criteria...NOT for the sake of balance.


What really works well for me here is this:

I look for trades to jump out at me....they really will sometimes, since
your criteria will naturally all come together at certain times. When this
happens, I will take on 2-3 times my normal contract size. Even if it means
having only one very large position - I would much rather have all my eggs
in one "stong" basket rather than all the eggs spread over luke-warm trades
for the sake of "diversification" -

Any other thoughts on this?


Tom Cathey