Markku Kurtti – Diversification is a Negatively Priced Lunch (S7E7)

Corey Hoffstein welcomes Markku Krävätti to delve into Markku's background in finance and his insights on the compounding process. They discuss the Kelly criterion, drawdown risk, and stock diversification, exploring the debate on what constitutes sufficient diversification in stock portfolios. Markku shares valuable lessons for active stock pickers, analyzing the performance of the largest stocks and their growth rates. The conversation examines geometric growth, expected drawdowns, and empirical testing, comparing leveraged and all-equity portfolios. They address the equity risk premium puzzle and the implications of theoretical models on real-world investing. The episode concludes with a summary of key research findings and takeaways.