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Gathergood, Hirshleifer, Leake, Sakaguchi, Stewart



Articles by Gathergood, Hirshleifer, Leake, Sakaguchi, Stewart

Investors’ diversification rules are even simpler than we thought

June 22, 2019

John Gathergood, David Hirshleifer, David Leake, Hiroaki Sakaguchi, Neil Stewart 22 June 2019

Investors who choose to build their own portfolios by stock-picking face the choice of how to diversify among stocks. The 1/N heuristic, equalising portfolio shares across stocks held, works well in practice. This column shows that investors who buy stocks often employ a different form of 1/N, dividing purchase value equally rather than maintaining a 1/N allocation. By narrowly framing their buy-day decision, these investors move their portfolios farther away from balance.

The rise of the mutual fund industry and growing number of diversified investment products – such as exchange-traded funds, closed-end funds and unit investment trusts –

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