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Many investors go to snooze each night feeling protected and sheltered because their asset portfolios are properly diversified. Conventional diversification challenges to reduce jeopardy and offer more opening for the average investor. However, when we observe conventional diversification protocol through the objective eyes of pure supply and demand, it becomes quite clear that conventional diversification actually increases risk and decreases opportunity.

The Foundation: Quantify Supply and Demand

The movement of cost in any and all free marketplace is a task of the regulations of pure deliverance and claim. Low risk/high reward exchange emerges when this simple and straight forward relationship is out of balance.

The Simplicity of Markets

Trading and investing market consists of three components: buyers, sellers, and a widget being bought or sold. These widgets may be shares of a stock, S&P futures, foreign currencies, bonds, and many more corporeal and insubstantial “widgets”.

A market is always in one of three states:

First, it can be in a state where claim surpasses supply which means there is rivalry to buy and that leads to higher prices. Second, it can be in a condition where supply exceeds claim which means there is rivalry to sell and this leads to waning prices. Third, it can be in a state of stability. At equilibrium, there is no rivalry to acquire or vend because the market is at a price where everyone can acquire or vend as much as they want. However, as the market moves away from equilibrium, competition increases which forces price back to equilibrium. In other words, competition purges itself by forcing markets back to equilibrium.

The greater the supply and demand disparity, the greater the opportunity

While many “professionals” would have you broaden your horizons and portfolio by buying many different stocks or a “ladder” of bonds for example, a much more efficient, lower risk/higher reward approach is to recognize the markets with the greatest supply/demand imbalance and risk your hard earned capital there. The thresholds in markets where prices turn are the price levels where supply and demand are out of balance, period.