We talk a lot about both diversification and diversity, yet describe them as if they’re fundamentally different concepts. However, I don’t think the diversification we might talk about over investing is all too different from the diversity we talk about in the corporate field. Both come with the same major advantage; an advantage that follows around the fact that you can’t do it all alone.
When you pick one stock, you are accepting all the risks and rewards of that one stock. While your gains might be much higher, your losses are higher as well. Unless you know its a sure thing — and you never know its a sure thing — then holding one stock is a bad idea. You want to diversify. You want to diversify not just among many stocks, but many classes as well — equities, debts, real estate, etc. Your goal is to remove the risk that comes from being too concentrated while keeping the benefit of the returns.
Now let’s bring this concept to reality. Let’s say you’re the only person working on a problem. Well, you might be really good at solving that problem, and that it works, and that you get all of the rewards. More often than not, that’s not the case. You’ll need the help of someone who knows a little bit more about a piece of the puzzle than you do. Now, I’m not talking about surface-level diversity like race or gender or sexuality (though that also often works). I’m more so talking about diversification in skillsets, backgrounds, ways of thinking; these are what really makes or breaks the risk/reward ratio we were discussing earlier.
I’d like to say you can do it all alone. I really do. I’m not exactly the best socializer out of the bunch. However, to my point: bring me a good socializer, and we’d make a good team. You can’t do it all alone. But if you pick the right hand, you’ll always win.
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