Focus, don’t Diversify

by Dual Income No Kids on January 31, 2008 · 0 comments

Hi All,

Most of you probably know what diversification is, thats when you spread your investments across various asset classes, across various industries and types of stocks. The main idea behind diversification is that large scale statistical processes allow you to efficiently maximize your return while limiting your risk (1).

Ignore diversification. Its great if you want to buy mutual funds and let them ride, but it makes less sense if you’re serious about building wealth. If you don’t believe me, take from Warren Buffet

Diversification is protection against ignorance. It makes very little sense for those who know what they’re doing“.

– Buffet quoted in “The Warren Buffet Way”.

Instead, I would reccomend getting informed, taking calculated risks and focusing your wealth building activities. Most people who are serious about money do this.

Best,

James

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