Rethinking Diversification

For our entire lives, most of us have depended on highly centralized systems. Our food comes from a thousand or more miles away. Our savings is shipped into distant financial centers and invested by strangers in enterprises run by strangers. We watch highly scripted news that serves the same spin no matter how many channels we try. We bank at impersonal global banks with criminal records that would make a felon blush and have no idea where our money goes, just that the government guarantees that we will get it back.

Within this centralized system, diversification means having your financial assets deposited into a “one-stop-shop” brokerage account invested in securities representing different global industries, the idea being when one industry is doing poorly, another “countercyclical” industry would be doing well.

But suddenly, we find that we may not be able to trust these centralized systems. Suddenly, traditional portfolio theory no longer addresses our anxiety. This is because we need to shift from diversification within a centralized system to real diversification in a decentralized, possibly “out of control” world.

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