Bartstool's Dave Portnoy Breaks Down About The Importance Of Diversification

With the entire sports world on hold for the time being, Barstool Sports founder Dave Portnoy has been livestreaming himself trading a $3 million E-Trade account.

Portnoy has had a rough go of it up to this point, but his daytrading streams have been both entertaining and educational for his followers.

This week, Portnoy explained the power of diversification, using battered cruise and airline stocks as examples. Portnoy recommended buying and holding Spirit Airlines Incorporated SAVE, Delta Air Lines, Inc. DAL, Norwegian Cruise Line Holdings Ltd NCLH and Carnival Corp CCL.

Diversification

“If you have money and it’s sitting there, just put it in these and forget about it,” he said.

“If one of them goes bankrupt, you’re still going to make a shit-ton of money. If you put the same amount of money in all of them and half of them go bankrupt, which they’re not, you’re going to make tons of money.”

Portnoy explained the investing principle of diversification without using the term explicitly.

“Four companies--let’s say they’re all $10. The stock, ok? Mathematicians, four companies, $10 each, that’s $40. Do the math. Two of them go out of business. You’re down to how much? $20. Fine. The two that stay in business in three years are worth 5x to 8x guaranteed,” Portnoy said.

Mitigating Risk

The general idea of investment diversification is that there is safety in numbers. Investors sacrifice the potential large gains of one or two home run stocks for the safety of not being as exposed to one or two big losers.

“Worst-case scenario, two stay in business. What’s five times 10? Fifty. So now you have $100 in those two companies. And what did you lose in the other? Twenty. You’re plus $80. I just did math right in your eyeball,” Portnoy said.

“That is sound, perfect, next-level, big-brain thinking.”

Benzinga’s Take

Davey Day Trader seems to have figured out the power of diversification, but his portfolio of travel stocks is far from a safe bet. While it may be unlikely all four companies will go bankrupt, it’s extremely risky to assume the bottom is in for these travel stocks and that any stock will gain at least 500% over a three-year period.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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