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The Illusion of Diversification

October 7th

Diversification is protection against ignorance. It makes little sense if you know what you are doing.

Warren Buffett

Conventional investing wisdom echoes with the mantra of diversification. The idea of broadly spreading one's investments is espoused as a safeguard against the unpredictable currents of the market. But is that truly the secret to successful investing?

Diversification might be more accurately framed as a security blanket for those unsure of the nature and potential of their investments. It's akin to tiptoeing around the edges of the financial playground without ever daring to truly engage. A more courageous approach, rooted in deep knowledge and understanding of one's investments, may yield richer rewards.

Doing your research, understanding the business you're investing in, its potential for growth, and its place in the market, removes the need to scatter your investments to the wind. Instead, it lets you invest with conviction where you see true value. It is not about adhering blindly to the rulebook, but about making informed decisions based on insight and understanding.

This principle extends beyond the realm of investing. In honing a skill, nurturing a relationship, or building a career, depth often outweighs breadth. Diversification, then, is not a strategy for those in the know, but a safety net for the uninformed. Investing, like life, thrives on knowing what you're doing.

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