To Diversify or Not. That is the Question
Why the anger? Some people like focus while others do not. So, what exactly are the arguments for heavy diversification versus concentrated portfolios.
To paraphrase two well-known investors – anybody who diversifies an investment portfolio must be an idiot or a moron. These statements can be attributed to billionaire entrepreneur and television personality, Mark Cuban and Charlie Munger, Vice Chairman of Warren Buffett’s Berkshire Hathaway.
Buffett himself is quoted as saying “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
Whereas others feel that diversification is smart and inexpensive and the opposite of what a moron should do.
So, what should you do? Simple, if you do not have the time to devote to developing a concentrated approach then you should take advantage of the long-term averages and go with index funds or ETFs. However, if you have put in the time to develop a concentrated approach that works, why not continue that method while learning and growing?
Attempting to outperform the stock market is a challenging endeavor that most individuals or institutions will not undertake but not because it cannot be done.
The main roadblocks to outperformance are restrictive investment policy statements, diversification rules requiring the purchase of a minimum number of stocks, career safe decision making, no real passion or interest in the investment process, and overcomplicating what is necessary for market outperformance. Of course, the more obvious culprits are lack of a process, discipline, consistency, and no real strategy. The latter applying to mostly retail investors.
Finding a winning strategy requires years of experience and constantly learning from one’s mistakes. The learning should never stop. Are you ready to focus and concentrate on a winning portfolio strategy? Consider joining “The Collective.” Find out more, schedule your consultation today to see if our approach is right for you.
