Diversification (broad market exposure) reduces the risks related to specific companies and industries leaving investors with only market risk to bear. The impact of the COVID pandemic on Disney stock vs. the broad market is a perfect example of the risk benefits provided by diversification.
Investors often assume that the average historical return of individual stocks is similar to the average historical return of the broad stock market. In reality, most individual stocks underperform long-term market returns which are lifted by a relatively small number of stocks with exceptional returns. Investment strategies built around individual stock picking run the risk of missing out on the small number outperforming stocks. Only consistent broad market coverage ensures exposure to the best performing stocks over time.
The media is in the business of drawing attention to its content. A media company that focused on delivering content based on academically driven investment concepts likely would not stay in business for very long. When reading headlines or hearing talking heads discuss markets, keep in mind the inherent conflict of interest underlying the content.
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