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Diversification Produces Mediocrity

Many times I ask stock market experts or those that claim to be (many of them around with Sensex crossing the 9K mark), give me one stock, to invest 50% of my savings, they express immediate caution. Their sincere advice “Shrikant you should have a basket of 10 stocks” and “then a split between real estate, stocks and cash”. Of course you can choose this diversification strategy you will be secure but never very rich.

Warren Buffett, one of the world’s greatest investors, said, “Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing.”

Many financial advisors recommend that you diversify for your own protection. What they fail to tell you is that it is also for their protection. Since most financial advisors cannot tell you exactly which stock or mutual fund is a great investment, they tell you to buy a bunch of them.

Intense Focus leads to Intense Rewards. In Hawaii, there is a great organization known as Winners Camp. It teaches teenagers the attitudes and skills required for success in life.

Winners Camp uses the word “focus” as an acronym, standing for “Follow One Course Until Successful.”

I believe all children should be taught to focus, as should any investor who wants to be a rich investor.

If you look at anyone who has achieved great success and wealth, people like Warren Buffett, Oprah Winfrey, or Lance Armstrong, they have all focused intensely in order to win. Lack of focus is also a big issue with startups and yound entrepreneurs, they try to hedge on many activities to bring home the bacon or keep cash flows on.

One of the reasons the rich get richer is because they are focusing, while the middle class is diversifying, and the poor are counting on Social Security and Pension. Its also the case when some companies succeed others don’t.

1 thought on “Diversification Produces Mediocrity”

  1. True, except the majority of us aren’t focussing our lives on investing like Buffett. The majority have careers/interests in fields other than investing and hence focus on those and simply don’t have the bandwidth to do in-depth research on a company. In which case the next best bet while investing is to diversify. Right?

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