Diworsify

Frequent visitors of this site would have sensed my tinge of disagreement yesterday. Many of my friends would also point out immediately that I am all against (over) diversification.

My concern is simple: Although you may have an astronomical sum of money in your account (unfortunately, that doesn’t include me), your portfolio is always 100% in total. The more types of stock you hold, the less likely each one of them would make an impact on the overall performance. In fact, if you consider expanding your portfolio from 50 to 100 stocks, it is much more likely to hit some landmines in the second 50 than the first. In other words, the risk is not reduced by further diversification, but quite the opposite.

Alas, why don’t you put up more effort to choose the first 50, and, when you have extra money, put them back of these carefully chosen ones?

Or, let me put it like this:

The traditional teaching is: Don’t put all eggs in one basket.

My interpretation is: It doesn’t mean that you have to put each egg in a different basket.

By the way, the advise of Warren Buffett is: Put all your eggs in a few baskets – and watch them closely.