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Diversification by its definition is about mitigating risks. It’s getting to the efficient frontier on the risk vs reward plot. So sure, you could make more by not diversifying but it’s by definition a much riskier and potentially less economically efficient answer.
Concentration can create or destroy wealth. No reason you can’t create wealth with a diversified portfolio.
Rising Star
Heartily disagree. Quite hard to beat S&P index fund for growth over long periods.
Yes, concentration *can* beat that, but is unlikely to
Uncles Warren and Munger and Bogle (may he RIP, what a boss) would verily disagree. Uncle Taleb would slightly agree but still tell you to follow a barbell approach.
Chief
Uncle Warren and Munger will disagree for general population. They themselves have done exceedingly well by concentrating…that’s well known.
I’m not advocating for concentration at all. Diversification is the way to go but wealth at the level of your example is always built on concentration. You can call it luck, skill, timing…
Chief
Disagree. If everyone picked 3 companies to invest their total net worth, what percent do you think would “create wealth”. By the time companies IPO now most of the spectacular gains are over. You would have to buy and sell winners over and over.
It depends on what you consider wealth. Diversification will easily get you market returns with lower variance. Concentration will have an equal or lower expected value, but with higher variance. If your wealth target is beyond the reach of market returns, you need to concentrate. If the target is within the market return range, then do diversification.
Which one these is for losing wealth?
Concentration has historically been better for returns. It's why the sp100 outperforms the 500 and the sp50 outperforms that. I haven't run the numbers but if you kept a portfolio of the 10 largest it probably would be the best annualized return of them all.
So basically you have nothing to support your position that the 100 out performs the 500, other than saying the article I found is 3 years old? If you want to start at 1983 instead of what the article showed, that is fine. The 500 index has averaged 11.4 percent per year from then. What does your database show for the 100? I would imagine it would be pretty similar to the average return in the article I copied.
Hard disagree
Its true. This is why you concentrate so much resource into your job
Chief
For the general use of the word wealth appropriate for this forum, diversification is the right strategy for both - protecting and building wealth.
There is another definition of wealth which is the top 0.01% of wealthy people. That kind of wealth is only created by concentration. The flip side is that following the strategy of concentration can also leave you poor more often than not. It is like an iceberg. What you see above surface are the only people who made it with concentration but there is a large underwater population that lost it due to concentration.
I amend my answer above and agree with this.