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What Is Your Diversity Policy?
The topic of diversity is getting a lot of discussion in society and in corporate America. Companies have developed diversity policies, they focus on diversity when hiring, and many have hired a Chief Diversity Officer to run this function within the business. The Bay Area is one of the most diverse places in the country, and we lead the charge in this area. However, when it comes to investing, many of those same intelligent, forward thinking people display a striking lack of diversity!
It is not unusual for Bay Area residents to accumulate stocks in the technology sector given the number of tech companies that call Silicon Valley home. People tend to accumulate stock in the company they work for and are interested and knowledgeable about emerging technologies in general. However, this can lead to a classic behavioral finance trap known as Familiarity Bias. An example would be an executive at a biotech company whose entire portfolio is invested in her own company stock along with a few other biotech firms and ancillary vendors with which she is familiar. This is understandable, but it can lead to an overly concentrated portfolio that leaves out entire sectors of the marketplace.
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