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Comment by brookside | Hacker News Reader

When the market turns sour it will be largely irrelevant if you own a collection of individual stocks or a packaged mutual fund, which is of course just a larger collection of stocks (or other securities).

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If anything, diversification is going to hurt you. The idiosyncratic risk of holding only a few stocks is going to be a lot higher than if you have a bunch. As such, the correlation to the market is going to be lower, thus potentially helping during market downturns

Depends on the diversification. If you hold uncorrelated bets, some may actually benefit from a global downturn

Honest question: what kind of investment, equity or otherwise, would pay out in the event of a global downturn? Besides gold, canned food, and guns/ammo of course. I can imagine some kind of “contra world economy” fund but could you suggest an example?

A bond fund might do okay. Or a distressed debt fund. But in general you wouldn’t want a fund with negative correlation to the market (since it’ll lose money all the time) but instead, one with low or zero correlation to the market. This is the idea of a market neutral fund: have zero market exposure so the return stream is completely uncorrelated.

A fund that makes money in the event of black swans can do quite well (i.e. 2001, 2008, 2020 (?))

It can lose money for months and/or years, but all it takes is one black swan to make all the money back and more.

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