Fannie, Freddie and You: What It Means to the Public

http://www.nytimes.com/2008/09/08/business/08consumer.html?_r=1&ref=business&oref=slogin

by dpapathanasiou • 18 years ago

14 7 18 years ago

It is now clearer than ever that there is no such thing as a truly safe single investment — not a big savings account at IndyMac, not the auction-rate securities that have caused so many problems for scores of investors and not supposed blue-chip stocks like Fannie Mae or Freddie Mac that you might buy on your own, outside of a mutual fund.

So, who is more likely to have owned some FNM and FRE: someone with 100 different investments, who must thus spend less than 1% of their time investigating any given holding (perhaps far less, if their research ever causes them to reject a potential investment); or someone with five or six investments, who thus spends a lot of time thinking about each one, and about what sorts of minor problems or unusual events could make those companies worth a lot less?

huherto• 18 years ago

Is that a rhetorical question?

Of course the one with 100 different investments is more likely to have own FNM and/or FRE. But, he only had 1% of his investments on that. On the other hand, if you only had 5 investments then you may have had 20% of your investments in FME or FRE.

byrneseyeview4• 18 years ago

The point is that the expected value for making a few investments is higher, if you put any effort at all into picking them. I just mean that if you have twenty people with five stocks each, versus one person with 100, I am betting that the latter will have more disasters, and fewer great picks. Although from one day to the next, 100 will show lower volatility.

Sort of like how if you decided to pursue your MD, JD, MBA, and PhD, this diversification would insulate you from the risk that you're not cut out for legal work. But would still be a terrible idea.

Fannie, Freddie and You: What It Means to the Public

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