A lesson learned from the collapse of Silicon Valley Bank and First Republic Bank
Many years before he became a Nobel laureate, Merton Miller used to say, “Diversification is your buddy” and another Nobel Prize laureate, Harry Markowitz, is reported to have said, “Diversification is the only free lunch” in investing.
Diversification is the practice of spreading investments across a variety of assets. It’s a time-tested strategy to mitigate risk. Children learn about it early in life with the phrase “Don’t put all your eggs in one basket,” but all too often, grown-up investors forget.
The recent collapses of Silicon Valley Bank and First Republic Bank in America are a harsh reminder that any share can go to zero, no matter how established a company is, or how loyal and wealthy its customers are.
If your wealth is highly concentrated in any one individual share, or just a handful of shares, take this opportunity to learn an important lesson: While many people think they know more than other investors, none of us knows more than the market.
On the day JP Morgan Chase announced that it was taking over the troubled First Republic Bank, how did First Republic’s dissolution impact the broad American stock market (S&P 500)?
When the market closed, the index was down 0.039%.
And if you’d like to read the full article Stock Market vs Stocks in the Market by Dimensional, you can do so here.
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