{"id":939,"date":"2007-01-24T13:16:37","date_gmt":"2007-01-24T20:16:37","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=939"},"modified":"2007-01-29T06:47:46","modified_gmt":"2007-01-29T13:47:46","slug":"a-different-view-of-diversification","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/939\/a-different-view-of-diversification\/","title":{"rendered":"A Different View of Diversification"},"content":{"rendered":"

Greg brought me on with the quote, “I think you would be a good counterpoint to Jeff Brown.” Well, I guess its time for me to start earning my keep. I fall on the opposite side of this diversification issue. The benefits of diversification outside and inside of real estate clearly outweigh the incremental positive returns because of the volatility. Additionally, I feel like Jeff and some readers make a mistake when they reflect on the past to judge whether diversification is a benefit or a negative. Hindsight is always 20\/20. The purpose of diversification is to limit risk, while maximizing the return for that risk. To look at any one specific past example is not to look at diversification, but to look at one point along a timeline of investing. Diversified investments over time have proven to be better because of the elimination (or minimization) of specific market\/property risk.<\/p>\n

Here is a quick example. If you own two apartment buildings in similar areas but different location you have the same risk for each location. However, when considered together the investments are far less risky than one building of their same size. The same principles apply in stock investing. Thinking about the Sharpe Ratio<\/a>, it is very easy to see why this is the case.<\/p>\n

As an investor I have always specialized in one asset class, residential (mostly apartments). Recently, however, in the search for Internal Rate of Return (IRR) and diversification I have considered changing course. With so many investment alternatives in the market, I would like to briefly talk about the positives and negatives of asset class specialization. I want to say in advance that I am certainly not an expert in this subject, so I welcome any comments or rebuttals to any statements made here.<\/p>\n

First, I decided to specialize in one asset class because I wanted to build an expertise. While I certainly don’t know all there is to know about buying commercial residential properties, I do know exactly what to look for when evaluating an investment. Additionally, I have a lot of experience dealing with tenants, particularly low income Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Greg brought me on with the quote, “I think you would be a good counterpoint to Jeff Brown.” Well, I guess its time for me to start earning my keep. I fall on the opposite side of this diversification issue. The benefits of diversification outside and inside of real estate clearly outweigh the incremental positive […]<\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,8,5],"tags":[],"class_list":{"0":"post-939","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-blogging","7":"category-investment","8":"category-real-estate","10":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":934,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/934\/ask-the-broker-is-there-any-diversifying-alternative-to-real-estate-investing\/","url_meta":{"origin":939,"position":0},"title":"Ask The Broker: Is There Any Diversifying Alternative To Real Estate Investing?","author":"Jeff Brown","date":"January 23, 2007","format":false,"excerpt":"Nick writes:Hi. I often scan your site and you seem to have collected a group of savvy and knowledgeable contributors. Here's my question for you and them: What is the opposite of real estate? I know diversification is a smart strategy and many investors limit their risk by investing in\u2026","rel":"","context":"In "Ask the Broker"","block_context":{"text":"Ask the Broker","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/ask-the-broker\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":781,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/781\/investors-version-of-grandpas-coffee-can-diversification\/","url_meta":{"origin":939,"position":1},"title":"Investor’s Version Of Grandpa’s Coffee Can — Diversification","author":"Jeff Brown","date":"December 19, 2006","format":false,"excerpt":"For the first time I'd like to post, almost simultaneously, (simulpost?) on a subject which has facinated me for years. My purpose is merely to introduce the subject. A meatier post will follow. Investors have been told by Wall Street to diversify since the street signs were put up on\u2026","rel":"","context":"In "Investment"","block_context":{"text":"Investment","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/investment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":961,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/961\/bloodhoundblog-week-in-review\/","url_meta":{"origin":939,"position":2},"title":"BloodhoundBlog week in review . . .","author":"Greg Swann","date":"January 28, 2007","format":false,"excerpt":"We had quite a week at BloodhoundBlog. If you haven't had a chance to stay abreast of the trail we're running, here's a summary of the week's most significant weblog entries. We added three new contributors this week, starting with real estate investor Michael Cook, who brought us The Right\u2026","rel":"","context":"In "Blogging"","block_context":{"text":"Blogging","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/blogging\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":924,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/924\/the-right-time-to-buy-an-investor-perspective\/","url_meta":{"origin":939,"position":3},"title":"The Right Time to Buy: An Investor Perspective","author":"Cooksquared","date":"January 22, 2007","format":false,"excerpt":"As we considered when to restart Cook Squared Enterprises, one question we had to ask ourselves was if it was the right time to buy. With interest rates creeping up and home values creeping down, is now the time to make a large purchase? Additionally, in my spare time I\u2026","rel":"","context":"In "Blog Carnivals"","block_context":{"text":"Blog Carnivals","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/blog-carnivals\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2197,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/2197\/dont-be-like-the-part-timer-queen-youre-embarassing-to-the-industry\/","url_meta":{"origin":939,"position":4},"title":"Don’t Be Like The Part Timer Queen- You’re Embarassing To The Industry!","author":"Lani Anglin","date":"November 9, 2007","format":false,"excerpt":"The line was\u00a0only two people deep\u00a0at the UPS Store the other day but it seemed to take forever!\u00a0 I had simply made four copies and wanted nothing more than to slap a dollar on the counter, holler \"keep the change, no receipt, thank you\" and walk out.\u00a0 Here in Austin,\u2026","rel":"","context":"In "Marketing"","block_context":{"text":"Marketing","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/marketing\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2476,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/2476\/bloodhoundblogtv-dustin-luther-jeff-turner-and-daniel-rothamel-on-the-inman-connect-conference-and-the-state-of-real-estate-video\/","url_meta":{"origin":939,"position":5},"title":"BloodhoundBlog.TV: Dustin Luther, Jeff Turner and Daniel Rothamel on the Inman Connect Conference and the state of real estate video","author":"Greg Swann","date":"January 7, 2008","format":false,"excerpt":"A four-way video podcast of Greg Swann plus three of the biggest names in real estate weblogging discussing this week's Inman Connect Conference in New York. Dustin Luther talks about the presentation he and Brian Brady will be doing on The Long Tail in real estate weblogging. 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