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    According to portfolio theory, people should hold more

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    According to portfolio theory, people should hold more than one asset (or investment) in their portfolios. The idea is that if some investments do poorly, other investments in the portfolio can compensate for the poor investments. Some experts claim, however, that not all people in a society follow this prescription. In other words, not everyone will diversify and, in fact, many hold only one single asset or investment. For this assignment you are to briefly address each of the following:

    Is such a claim true or false? Explain.

    Who, or what group(s), if any at all, might not want to spread his/her risks and diversify? Why or why not?

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    Solution Preview

    The claim that not everyone will diversify is TRUE. The most famous person who practice this is in fact our famous investor WARREN BUFFET.

    Warren once said: "Diversification is a protection against ignorance. It makes very little sense for those who know what they are ...

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