There's a job needs doing, but I'm not the best person to do it. Because I was never that good at variances and covariances and CAPM and stuff. One of you finance guys would be much better.
But "Get a loan against half your eggs, use it to buy some more eggs, and put those new eggs in the second basket" is generally not good advice. It's not the same as dividing your existing eggs between two baskets. It could only work if the risks of the two baskets are strongly negatively correlated. Sure it's diversification of a sort; but it's also leverage. If the risks of the two baskets are uncorrelated, or positively correlated, it increases your total risk.
Can someone who can do the math better than me please explain it to Garth Turner.
I'm not knocking Garth. Some of the advice he gives is right. Some of the advice he gives might be right. Canadian house prices might fall, and might even fall a lot. And I worry about that too. But on this particular bit of advice -- advising home-owners to diversify by taking out a mortgage to invest in other assets -- he's not got it right. And he keeps saying it. And a lot of people might listen to him.
(And set aside my old point about people being born with a short position in housing.)
Update: Andy Harless does the math simply and clearly in the third comment below. Thanks Andy!