The Daily Buffett

← PreviousIndexNext →

Focused Conviction

January 11th

Wide diversification is only required when investors do not understand what they are doing.

Warren Buffett

Scattering resources across various investments is a strategy often adopted by the unsure, the unconfident, or the uninformed. It's tempting, particularly when new to the world of investment, hoping that at least some will prove successful. But the call here is for a focused approach.

Understanding the business you're investing in is crucial. Knowing its operations, recognizing its place within the market, identifying its competition. Assessing its financial health and future prospects. Once convinced, the suggestion is to invest substantially rather than superficially. Depth is favored over width.

The counter-argument, favoring diversification, often positions it as a strategy to minimize risks by spreading them out. And while this might be a safer approach, it should not be a refuge for a lack of understanding. It's a safety net, but it should not replace the trapeze act of diligent research and calculated risk-taking.

Investing is not merely a game of chance, but a test of knowledge, understanding, and conviction. It's a reminder that when it comes to investing, the well-informed and the well-prepared stand the best chance of success.

Join the newsletter to get the daily reflection delivered to your inbox.

Copyright © 2023 by Scott Sansovich