Diversification.
I can almost guarantee if you go to any college and take a finance class.
One of the first real lessons you learn as a trader, is to diversify.
Buy a bunch of different companies, that way if one decides to fall, it doesn t hurt your
portfolio as much, as the other companies can cancel out the damage.
But some of the top investors likes Charlie Munger, Mark Cuban, and Warren Buffet
think otherwise.
I mean it makes sense.
If we take a look at some of the biggest and most successful business owners in the world,
which is almost kind of like looking at some of the most successful stock owners in a way.
Almost all of these people on the top Forbes list, they got there by creating one successful
company.
Maybe some of the made two.
Maybe some of them made three.
But almost none, if any, got here, by creating 50 different companies.
Whenever you have 10, 20, 30, 100 different stocks in your portfolio.
That s an extremely big amount of information to keep track of.
The ability to concentrate on just a few investments is an enormously valuable asset.
If you want to make high rates of return, it s extremely hard to do that with a massively
diversified portfolio.
The main thing I learned from this clip is if you are diversifying, It s basically a
confession that you don t really understand the businesses you own.
And I really like the point Warren Buffet made about just needing a few successful companies
in your life time.
To get rich, you really just need around 3 successful companies, it doesn t take much.
The thing is, these golden egg type companies are extremely hard to come by.
They aren t popping up all the time.
There s not 100 s of them out there to pick from.
They are pretty hard to find.
There s not 100 s of coca colas, there s not 100 s of apples.
There s only a select few.
The main argument for diversification is if you put all of your eggs in one basket and
that company fails, you re basically screwed.
That type of thinking is valid, but if you re truly investing into one of the golden
egg investments, that company will never fail like that, if it does fail like that, you
didn t pick a golden egg investment.
It doesn t
matter
what the market is doing, it doesn t matter if the economy is bad, it doesn t matter if
interest rates are rising, if this company is truly one of the good companies, it has
such a big competitive advantage that it will always persevere.
That s why they are so powerful.
And if you knew that you found one of these golden egg companies.
Why would you waste money throwing your capital in other ones?
Now look, this strategy is definitely not for everyone.
It can really only work for the 10% of people that know what they are doing.
This type of trading is going to have really bumpy returns.
You re going to have big green days, and big red days.
You also may not be the type of person to pick out companies like this.
Or you may not have enough knowledge about the stock market or valuing companies.
That s perfectly alright.
In that scenario, you should be diversifying, you should be investing in index funds, you
should be investing in a bunch of different stocks to reduce risk.
And that s perfectly okay.
Keep trading like that.
But if you know what your doing, you know the market trading in, and you know the company
you re looking at has a huge advantage over competition.
There is absolutely no reason to diversify.
Because your basically throwing money in the trash at that point.
In the end, the moral of the story isn t about diversification.
It s about knowing a business deeply enough and being extremely confident about its outcomes.
If you enjoyed this video, or got any type of value from it.
Leave a like, as it really helps my channel grow, and it ll keep me motivated to keep
posting videos like this.
If you want to see how to invest during high times of inflation, high interest rates, and
a falling market like we re currently in, watch this video.
Where we listen to Warren Buffet s advice to trading in a hard market like the one in
the start of 2022.
Thanks for watching, and I ll see you guys, next time.