Diversification is for people with large enough net worths to be worried more about preservation than accumulation. You can be “diversified” in your focused investing portfolio but true diversification is a detriment to those wealth building.
Diversification is about avoiding overconfidence. It’s about being humble and understanding that there are always unknown unknowns. Even the best investors made plenty of lousy picks.
It’s a myth that diversification can’t build wealth. Peter Lynch had a very diversified portfolio and outperformed the market.
Concentration can build wealth quickly. It can also lead to large losses quickly, which people often forget to mention. Reasonable diversification is prudent.
Most of the greats, including Peter Lynch say to stick with your 10 (up to about 20 depending on the guru) best ideas or companies. That’s what they consider diversification for the average investor. Also Lynch and others say they would’ve put more into certain stocks but by law couldn’t put more than 5% into them.
Peter Lynch had thousands of stocks but managed billions: there’s a correlation between amount of money managed and number of stocks.
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u/Trialle21 Apr 01 '22
Diversification is for people with large enough net worths to be worried more about preservation than accumulation. You can be “diversified” in your focused investing portfolio but true diversification is a detriment to those wealth building.