Get the right balance between risk and reward for a more relaxing investment journey.
"Buy land, they’re not making it anymore."
Mark Twain had a point, but was he onto a surefire investment winner?
For centuries, unwary investors have been tempted to chase returns by jumping on the latest money-making bandwagon. But history has shown that overcommitting yourself to one investment idea can go horribly wrong.
Way back in the 1630s, Holland was gripped by Tulip Mania, when tulip prices soared twentyfold in four months before plunging 99% a few months later, causing financial ruin for a broad swathe of the Dutch population.
In the South Sea Bubble of 1720, investors piled into shares of the South Sea Company after the British government promised it a monopoly on all trade with the Spanish colonies in South America. Anticipating a repeat of the success of the East India Company, shares in the company surged eightfold in six months, before collapsing shortly after, triggering a major economic crisis.
From property booms to tech crashes: the biggest asset bubbles in history
In hindsight, Twain’s real estate conviction has proved to be the root cause of more recent asset bubbles too.
In the 1980s, Japan’s government launched a huge stimulus programme to counter the country’s 1986 recession. But the measures worked too well. Rampant speculation saw the value of Japanese stocks and urban land triple between 1985 and 1989. At one stage it was reckoned that the value of the Imperial Palace grounds in Tokyo was greater than all the real estate in California. Eventually, the bubble burst and years of deflation and stagnant economic growth followed.
The stellar ascent of the big technology stocks has driven the outperformance of developed market equities in recent years, as shown in the chart below. But back in the 1990s, when the internet was in its infancy, reckless speculation saw new and unproven technology businesses achieve multibillion-dollar valuations as soon as they went public. When the dotcom bubble burst, the tech-heavy NASDAQ fell by nearly 80%, contributing to the 2001 US recession.
Asset class returns (GBP)
Source: J.P.Morgan Asset Management, Guide to the Markets, UK Q2 2026, page 98
After having their fingers burnt with tech, US investors switched their attentions to the perceived safety of real estate. The frenzy surrounding US housing culminated in the Global Financial Crisis of 2007-2009, when the world’s entire financial system was at risk of collapse. The resulting economic contraction was the biggest since the Great Depression of the 1930s.
Why diversification matters in investing
History has taught us that there’s no such thing as a guaranteed investment winner. No-one knows which investment is going to produce the best returns from one year to the next. In fact, the best-performing investment often turns out to be the worst-performing the following year.
Investing can be a thrilling and scary ride for those with the stomach for it. But for most investors, their life savings are too important to gamble with. They would prefer a more sedate journey towards financial security; one that avoids the compulsion to anxiously check their valuations every time they read or hear some bad news. The solution is to have a well-diversified and balanced portfolio.
The adage of not putting all your eggs in one basket is at the core of what investment diversification is all about. By spreading your money across different asset classes, industries, companies and geographies, you limit your exposure to any one type of investment, which helps protect you when things go wrong.
Inevitably, holding a diversified portfolio means that all your investments may not go up at the same time. On the other hand, they shouldn’t all go down either. They will react differently to the latest economic or geopolitical events. Having a broad mix of investments should help even out the impact of the inevitable peaks and troughs of markets.
Of course, when markets are on a roll, holding a diversified portfolio can feel disappointing because the extent of your upside can be limited. But it’s important to remember that the purpose of diversification isn’t to maximise short term returns; it’s to reduce the impact of downturns.
The idea is to reduce volatility and achieve more consistent, smoothed returns over the longer term.
By doing so, it should help you sleep more easily at night and put you on a less stressful path to achieving your investment goals.
Find out more about some of history’s biggest asset bubbles and the effect they had on markets.
Diversification in practice
Diversification is more than spreading investments widely. Done well, it’s a disciplined way of balancing opportunity and risk, helping portfolios stay resilient through changing market conditions without relying too heavily on any single asset, region, or investment style.
At Parmenion, that thinking sits at the heart of our investment philosophy. Our approach to portfolio construction focuses on deep diversification across and within asset classes, underpinned by a robust risk framework and a long-term outlook. It’s how we aim to help advisers deliver more consistent outcomes for clients, whatever the market environment.
If you’d like to learn more about how we put this into practice, take a look at our investment management approach.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
