Investor risk spreading

[Mark Wolk]

It's common sense not to put all your eggs in the same basket, but how do you apply that saying to real estate investment?

I.e. if you have to buy 5 properties which you intend to rent out:

- how many of them would you buy in your town / city?

- how many in a different region of your country?

- how many abroad?

[Dory Peters]

Will,

That's exactly my point. Although the amount of risk for a particular opportunity doesn't change, one's percentage of exposure to that risk does lessen with group participation. That's not to infer or imply that each participant will share the exposure to that risk equitably.

Every opportunity has a linear combination of risks and rewards. Ealier you stated, "Diversification is for investors who don't really know what they are doing and need diversification for safety." I agree, and I'll go a step further. I believe a lot of investors are ignorant, lazy, and/or apathetic. I believe that many of them (mis)use diversification as an alternative for digging into the fundamentals for each opportunity. I view their form of diversification as playing a round of Yahtzee: rolling multiple dice.

Investing, farming, and gambling all share something in common: they all involve playing games with numbers. I view farming and gambling as opposite extremes of a spectrum. The less an investor knows about the underlying fundamentals of a particular investment, the more s/he is gambling. Similarly, the more s/he knows about those fundamentals, the more s/he is farming. Farmers know what to plant, where to plant it, how to nurture it, and when to harvest it. Farmers also know (or learn) that it's unwise to only plant a single seed, and to expect a bountiful harvest. I believe investors should do something similar.