The current crisis in Cyprus is a sad example of the mistakes that many professional and retail investors make when creating an investment strategy. This bailout plan is painful, but it is only a symptom of the problem, not the cause.
While much blame will be placed on finance ministers and international organizations, such as the International Monetary Fund (NYSE:IMF), I believe the real blame, which stems from one of the most common and biggest investor mistakes, lies in the mismanagement of capital by the banks themselves-the mistake: not diversifying their assets.
Essentially, the current crisis stems from the fact that Cypriot banks are approximately 7.5-times larger than the entire country. These funds come in the form of deposits into the banks, which then need to create an investment strategy for this capital.