To Diversify or Not?

Image by Getty Images via Daylife I have been emphasizing the need to diversify your investments and not to concentrate most of it on just one single investment.

Yes, there will be investors who quote wisdom from warrent buffett or other stock gurus on the merits of concentrated investment and knowing your investment real well. That diversification is actually an excuse for ignorance.

But how many of these so called amateur investors think they are really in the class of the gurus? Unless they have proven themselves using a diversified portfolio that they have a knack for picking good companies (in which case, the overall stock portfolio would rise in value as well), they should not attempt to do concentrated investment.

Also, there have been numerous studies by private banks that a lot of entrepreneurs and CEOs have a bulk of their wealth tied to the fortunes of their companies (in the form of shares & options). As can be seen during the past few crisis, a concentrated holding (even for CEOs and chairman who knows their company and industry inside out) could not prevent the erosion of their wealth. In some cases, the company going bust (some internet companies, some banks) have allowed their employees to go from millionaires to zero-aire.

So, before you start having this fantasy that you are in the league of the investment gurus, please validate that statement first. Are you in that league yet?

For myself, I admit I'm not in the league of the gurus and to know I am not and to implement a safer risk-managed investment strategy will lead me to multiply my investment portfolio slowly but steadily.