AIG Diversification

What AIG Can Teach Investors About Diversification

Imagine that back in 2007, you had $3,000,000 to invest on behalf of a private family investment partnership you were running.  You decide to split this into three different companies.  One of these was AIG, the insurance conglomerate. AIG shares fell from a high of $1,459.00 each to $6.60.  The Board of Directors had to do a 20-1 reverse stock split to keep the thing from trading for less than the value of bottle caps.  

Factor In Your Income Sources When Seeking Diversification - Nest Egg

Factor In Your Income Sources When Seeking Diversification

When it comes to diversification, you have to look at your entire life and not just your portfolio.  Several years ago there was a book I really enjoyed that dealt with this topic called Are You a Stock or a Bond?: Create Your Own Pension Plan for a Secure Financial Future. It provided a valuable framework for understanding how the stability of income in your life should inform your approach to asset allocation.

Chinese Proverb Melon Seeds

Do Not Throw Away the Melon for the Seeds

There is a traditional Chinese proverb that goes something along the lines of, “Do not take the seeds and throw away the melon”. Though there are many ways you can approach this, and multiple lessons that can be extracted from reflecting on it, it can be particularly sage when it comes to running a business and allocating the cash flow from that business. One of my favorite examples comes from The Coca-Cola Company.