Most of the advice we get on financial literacy and wealth building is actually middle class building. “Own your personal residence, invest in a 401k, you need work life balance, diversify your investments”. These all serve to keep you out of trouble and the poor house but they don’t create wealth.
Which brings me to diversification. I think it is dumb. I didn’t know why it was dumb so much because when you are a finance guy like me most of what we do is spend time memorizing the conventional wisdom and then preaching it to the masses. This is what my series seven taught me. This is what my investment courses with chase private bank taught me. Well, we off that.
Recently, after having a ton of success both managing club money and personal money, I have come to a revelation that instead of putting all your eggs into multiple baskets it’s best to put them in one basket and watch that basket.
Diversification lets you be lazy and it invites loss
When you diversify most of the time you carelessly place money in unsure and unproven holdings because the goal is to have your winners outweigh your losers. This is lazy. We figure that if we spread all our money out in various areas something is bound to pop. While this is true, when you invest this way, usually you don’t even have a large enough holding to truly win when that one holding out of seven hits like Netflix did for us at 80%.
See, if we had REALLY did our research on Netflix and really knew what we were doing, we would have doubled our entire $70,000 portfolio. Since we wanted to be lazy and let the opinions of others determine if we should buy, we only doubled our $10,000 position. The difference in our work ethic made the difference in our earnings. Investing is just like working.
When you diversify you are just scattering seeds and hoping. Hoping is a poor business and investing strategy. The wealthy bet on sure things and you have to dig in to find those sure things. I challenge you to take it serious and find the right thing not scatter and pray. Be the laser not the machine gun.
Not diversifying is for winners
The true investor only bets on winners and to make sure they bet on winners they do the home work, research, listen to conference calls, and question to make sure they bet on a winner. .
It is tough to do that when you have twenty holdings. However, if you don’t do this then you will have to deal with the lazy man gains. Warren Buffet doesn’t buy a bunch of every company. Warren Buffet goes all in on the RIGHT companies. To win you have to do the same. Invest big on the right stuff and don’t diversify. Commit to one thing, go all in and win big.
You have to be obsessed with your holdings you can’t just invest passively and expect to get wealth. Just like you cant work your job passively and make money, you can’t run your portfolio passively. The harder you work on your money the harder your money will work for you.
When you skip the diversity easy path you have to dive in DEEP. Just like nobody tells you to marry multiple women you need to marry one or two stocks and know everything about that stock. You need to listen to that stocks goals and dreams you need to know who runs it, what their philosophies are and what their projects are for the future. When you invest like you marry you get the winnings of the married. You get the offspring, the deeper level of love, not just the one night fling that is fleeting. Pick the right stock one time, learn everything about it and marry it, don’t be a stock hoe.
Diversification is for the lazy. Lazy people don’t get rich. Jim Cramer always says that diversification is the only free lunch in the market. Well, despise the free lunch. There is always a catch with the free lunch. It will cost you some how in the end.
This advice is for people who want to win massively. To be successful you can’t be balanced. Balanced people go nowhere. To win as an investor you need to be less about diversification and more about picking the right vehicle and going all in. Once you get wealthy then you can diversify and preserve what you have.
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Be great and invest well!