Different is not Diversified

Warren Buffet famously said, “Successful investing takes time, discipline, and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”

While the sentiment is intuitive to many, it’s often hard for some to resist the lure of buying the “hot stock”, or concentrating their assets in a single security based off of an exciting story, hope, or greed. These are speculative bets, not viable, long-term investment strategies.

An intentional, professional approach should be taken to create a balanced portfolio managed with a professional temperament. Diversification isn’t simply just having a general asset allocation or larger number of holdings. Instead, we favor a strategy allocation with a combination of assets and asset types that avoid moving in the same direction at the same time, which reduces risk. Over time, each investment should generate a return commensurate with the risk being taken, and each should be sized properly to reflect its risk level and role in the portfolio. Underperformance of mutual fund manager or individual stock should not take down an entire portfolio. While this approach may not seem as exciting as others, it’s a much more prudent, long-term approach to pursue one’s goals.

As Mr. Buffet also said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”