“Diversification is for idiots.”

Mark Cuban said this in a video interview. He also added that diversifying will diversify your profits away. Warren Buffett said, “diversification is protection against ignorance.”

If your priority is to see a modest return on your investment in the long term then you should diversify. If your goal is to make a large return in a relatively short amount of time then diversifying will likely not get you there.

Conventional investing advice has a way of altering your perception. People who would gasp at your 1 stock portfolio would at the same time congratulate you on investing your life savings in a new business venture — go for your dreams! Putting it all into your one business is the same as putting it all on one stock. Most people would have been better off putting their money with Jeff Bezos than whatever costly venture they got themselves into.

Diversifying is recommended for every stock portfolio while the status-quo for everything else is to put all of your eggs in one basket. Who diversifies their education? How often do you get the advice to diversify your girlfriends?

I’m not recommending that everyone have a 5 stock portfolio. Warren Buffett also said 99% of people should just invest in an index fund. Most people aren’t skilled or lucky enough though to come out victorious in the stock market without diversification.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s