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Seeking Alpha: Maybe diverification is not all it's cracked up to be?
If you only invest $100 in a stock, even if it goes up 10x you've only got $1,000. Is that going to change your financial future? Unlikely. Your investments must be big enough to make a difference (obviously though, you must start where you are comfortable and with what resources you have).
Minor Axiom II - Resist the Lure of Diversification
Diversification has three major flaws as pointed out by Gunther:
1) Diversification forces you to violate Minor Axiom I by failing to play for meaningful stakes.
2) With diversification, it's more likely your gains and losses will simply cancel out.
3) By diversifying, you spread yourself too thin and must become an expert on too many arenas.
It's far too difficult to be an expert on bonds, stocks, gold, real estate, and every industry from here to there. Just learn about what areas you want to know and become an expert at that. It's far more difficult to avoid losses when you're spread thin and far more difficult to achieve great gains.
Comments
Minor Axiom I - Always Play for Meaningful Stakes
If you only invest $100 in a stock, even if it goes up 10x you've only got $1,000. Is that going to change your financial future? Unlikely. Your investments must be big enough to make a difference (obviously though, you must start where you are comfortable and with what resources you have).
Minor Axiom II - Resist the Lure of Diversification
Diversification has three major flaws as pointed out by Gunther:
1) Diversification forces you to violate Minor Axiom I by failing to play for meaningful stakes.
2) With diversification, it's more likely your gains and losses will simply cancel out.
3) By diversifying, you spread yourself too thin and must become an expert on too many arenas.
It's far too difficult to be an expert on bonds, stocks, gold, real estate, and every industry from here to there. Just learn about what areas you want to know and become an expert at that. It's far more difficult to avoid losses when you're spread thin and far more difficult to achieve great gains.
Here is the Full list of Zurich Axioms:
http://www.getrichandgiveback.com/2010/12/zurich-axioms-rules-for-investing.html