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Diversify, diversify, diversify.

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November 28, 2008 – Comments (7)

We diversify to reduce risk. If XOM goes under we also own BP, so we do not lose everything. If oil stops being used we also own BBBB and ISRG so once again we do not lose everything. The price of diversity is the great home run gain. We give up the possibility of having everything we saved loaded into XOM when it doubles for instant riches. Many of us are willing to take such risk, others are not. If you are young you may be more inclined to risk it all and swing for the fences. As you age you take less risk because you have less time to recover if you strike out. Or you become desperate and increase you risk. But in truth, this is only money. If you lose every penny you just keep working.

Last summer in the USA we all got a taste of what a lack of diversity means when fuel prices skyrocketed and transportion became expensive. It was burn oil or walk or stay home. Everything we use or need went up in price. No diversity, no options. And we all whined someone other than ourselves should have done something when Jimmy Carter tried to diversify our energy portfolio. But that was ok then. We went all in to cheap oil and swung for the fences and great riches followed as we hit the ball out of the park. Oil is back down in price and the cry to diversify into alternatives has quieted. It is not silent, but the pressure is off. Perhaps we will diversify. Perhaps we will not, and it may even work out again. It does not matter that much. We can get by on much less oil. There is still time to diversify.

So how was your Thanksgiving? Did you get to enjoy a hefty meal. I had a nice free range turkey, organic homemade cranberry sauce, a delicious sweet potato dish with pecans and brown sugar. Lots of organic, lots of diversity. I hope you enjoyed yourself too.

What did you have? A turkey raised in a barn on corn? A nice crown roast raised on corn? Corn fed beef? What are you eating for breakfast? Cornflakes? Seventy percent of our food comes from corn, rice, wheat and soy. Most from corn. Did you stop at Micky D's for a quick burger for lunch? 100% corn fed beef. Not corn and something else, just corn. Years ago it came from different breeds of corn, some ripened early, some late, and the locust swarm could not get it all. Locusts aren't a problem today, neither are weeds. We have "roundup ready" corn and soy from Monsanto. We went all in on the cheapest choices. Our food supply is not diversified. It is a high risk strategy that has gone well for a long time. Just like oil has.

The invisible hand of the free market is an idiot. It does not plan, it has no brain. It does not consider beyond this week, or outside its price structure. It seeks only what is cheapest and focuses all of its resources there.

Somewhere out there Mother Nature is breeding a bug or a disease that will thrive on "roundup ready" corn and soy, the way algea blooms on nitrogen. The free market will not consider that bug, nor will the bug consider the free market. And neither cares if you eat.

I have carried this idea rattling around in my head for a while now, and as my family goes to sleep and I sat here sated on turkey and wine I think of the many things I have to be thankful for. My family is healthy and safe. Grandma has recovered from lung cancer surgery. My cousin, laid off from his dealership has found work until New Years. Tastylunch's list in case you missed it. All those things I see in my daily life that are still in place.

I am thankful that some of you will scoff at this post.

7 Comments – Post Your Own

#1) On November 28, 2008 at 1:21 AM, jahbu (89.09) wrote:

King Corn

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#2) On November 28, 2008 at 4:12 AM, BigFatBEAR (29.55) wrote:

Devo,

Nice rant! (if you'll pardon me calling it that.) While cries for alternative energy are rampant, I haven't seen too many food discussions here on the fool outside of MON. Kind of nice for a change.It'll be interesting to see what happens with our corn and oil based economy going forward.

I'm a young rookie to stocks who is constantly questioning his risk appetitie in this market...   do I throw my retirement into SPY? Or does the potential gains from COP/JNJ/BHP make that the more enticing option? Should I make short-term technical trades, or long-term fundamental investments? It's hard, too, because the choices I make today can affect my bottom line years from now so significantly... 

Anyway, it's late and I should sleep. Look forward to reading more from you.

-BFB

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#3) On November 28, 2008 at 9:30 AM, djemonk (< 20) wrote:

I fear Big Corn.

On a serious note, this is a well-thought out post.  It doesn't really make sense to put all the eggs of the country into a small number of baskets, especially when those baskets aren't all controlled by us.

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#4) On November 28, 2008 at 9:36 AM, JeanDavid (77.27) wrote:

"If you lose every penny you just keep working.If you lose every penny you just keep working."

 

You do not always have that option. If you are deemed too old, you cannot work anymore in spite of anti age discrimination laws. Or if you are too feeble or sick to work. Or if there are too few jobs. Or if you are a sole care-giver for young children or old parents.

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#5) On November 28, 2008 at 10:15 AM, kirkydu (93.89) wrote:

Good post.  I've been buying RJA, DBA & DYY with the same thoughts.  Maybe I'd have posted similar if I had more wine yesterday.  Darn.

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#6) On November 28, 2008 at 12:43 PM, devoish (99.07) wrote:

Thanks for the responses.

 I actually started thinking about this months ago when we were all bashing the agriculture subsidys bill. I think it is important to subsidize agriculture to the point that we grow much more than we need, because free markets do not allow that precaution. And someday mother nature will take a large chunk of what we grow. Whether it is a bug or a flood will not matter. That the subsidy program as it exists right now encourages this lack of diversity means it needs to be improved not scrapped.

kirkydu, those funds do stand to benefit unless the problems I mention are addressed, and probably will even if they are for many of the reasons in your RJA pitch. Thanks for the good suggestions.

JeanDavid,

You are 100% correct and I completely agree with you. It is just not where I wanted to go with this post, and I am glad you did not let that statement stand.

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#7) On November 28, 2008 at 1:06 PM, FreeTradingQuiz (< 20) wrote:

I found this really fun Trading Quiz.  It is gives you a trading profile and a free tool box,http://www.freetradingquiz.com/?utm_campaign=blogMW">FreeTradingQuiz Take a look, I would like to get some feedback, it told me I was an Position Trader for Forex, I never really thought about it, but it does seem to fit me well.  Hope to hear from folks and see what they think. 

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