Geographical Diversification

You need to diversify your investments to maximize returns while minimizing risk. Everyone knows that. See: Efficient Frontier. It can get hard, though, because companies can share characteristics that turn out to be obvious, but are so fundamental they can hide in plain sight.

Take geography. You invest in a promising app developer, a medical device company, an insurance giant and oil producer. Pretty good industry diversification.

But it turns out all those companies are headquartered in the same few blocks in Manhattan. Meanwhile, that part of New York has suffered an outbreak of a hallucinogenic black mold, which has caused every executive related to your portfolio to make erratic decisions, and to bark like seals during investor conference calls.

Now all the stocks in your portfolio are plummeting. A lack of geographical diversity coming home to roost.

In real-life practice, geographical diversity involves putting money in different countries and global regions. So don’t just buy stocks in U.S. companies. Look for firms centered overseas as well. Russia. China. Japan. New Zealand. Belize.

Well, maybe diversify to Belize by buying some beach-front property there.