CONVENTIONTIONAL WISDOM SAYS DIVERSIFY, BUT HERE’S WHAT YOU MUST KNOW!
“Diversification is protection against ignorance. It makes little sense if you know what you’re doing” – Warren Buffet”
“Bitcoin is rat poison squared”: even though I may not agree with this very quote of Warren Buffet back in 2018, you’d agree with me that the billionaire CEO of Berkshire Hathaway is a colossus in investing.
Regular wisdom expects you to diversify your investments if you want to be successful long-term as this would mitigate your risks. However, most beginner investors have not come to discover how disastrous that can be if you stretch it.
Little wonder some of the world’s best investors like Warren Buffet think otherwise. Diversification is protection against ignorance. It makes little sense if you know what you’re doing – Warren Buffet.
Let’s be honest- you really don’t have all the time to keep watch of dozens of companies in your portfolio. This is why even great traders have just a tiny watch list of stocks/ cryptocurrencies they are trading or plan to trade at a particular time.
You’d need a lot of energy and time to properly monitor factors that may lead to a change in the price of your assets. Anything other than that would be pure gambling. There’s possibly no way to know all there is to know about dozens of assets.
Here’s another favorite quote from Mark Twain: “Behold, the fool saith, “Put not all thine eggs in one basket” – which is but a matter of saying, “Scatter your money and your attention”; but the wise man saith, “Put all your eggs in one basket and – WATCH THAT BASKET”.
When I started investing in cryptocurrencies, I spread out very thin capital into various coins that turned out a horrible decision. If I had only chosen a few, it would have been easy to measure my losses if I’d have any. It’s been a long learning curve that I find great pleasure in.
Diversification may preserve wealth, but concentration builds wealth - Buffet
A bit of practical
If you had a ₦100,000 capital split across 20 investments and just one does 100% in profit, here’s the scenario:
₦5,000 (each) x 100% = ₦10,000
The rest 19 investments = ₦95,000 (assuming they didn’t lose value)
But if I had split the same ₦100,000 in just 4 investments and one does 100% in profit,
₦25,000 x 100% = ₦50,000
The rest 3 investments = ₦75,000 (assuming they didn’t lose value).
You’d have made ₦50,000 off the second choice as opposed to ₦10,000 0ff the first choice of over diversifying.
Before you get lost in the euphoria of throwing money into a bunch of promising cryptocurrencies, you’d need to do your own research (DYOR) properly so that your investments stay concentrated and based on strong fundamentals that you can personally monitor.
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