Why Diversification Results In Mediocrity

While there is unquestionably some truth to the idea that the world is often too random to literally make just one bet, the widely held assumption that diversification is a free lunch is just plain wrong. Just as there is benefit to be derived from diversification with respect to risk, there is a cost, too — that of losing whatever edge you might h... See more

Warren Buffet and many of the best investors I know favor making a few very well-informed bets rather than opting for significant diversification.

Making fewer bets requires conviction. It requires the courage to stay the course. And it requires the support and resources to take the long view. If you do these things, odds are that you’ll do something worthwhile.

Focus is not inconsistent with intellectual honesty. It does not mean ignoring feedback. It simply means that your bets are well selected and that your conviction to find a way to make something work is high enough to overcome the inevitable hurdles of building a company, product or investment portfolio.

If you seek extraordinary performance, focus on what you know very well, do your homework, have conviction and take a stand. It’s the right way to build a product, to build a company — and to be an exceptional investor.