Don't put all your eggs in one basket

Having gone through a week of dramatic events around the world. I thought it would be a good time to 'turn the market off' and refresh myself with the first principles of Value Investing.

So I started reading the Essays of Warren Buffett again. The following series of post will be a refresher to myself which hopefully you may benefit from it.

Modern portfolio theory is an advocate of holding a diversified portfolio. It suggests that you are better of "randomly selecting a group of stocks by throwing darts at the stock tables than thinking about whether individual investment opportunities make sense". As the saying goes, "don't put all your eggs in one basket". Of course, the finance world uses words like "Beta" to convince everyone (including themselves) that it's a sophisticated  process. Sounds good on paper, but the problem is it implies that it is a waste of time to study and understand the business you are investing.

I have a strong conviction that to be good at something, you have to work hard for it. Accordingly, I would put all my eggs in one basket. Because I would have done so much work studying about the basket: how strong is the basket (its fundamentals); what's the chances of it going wrong; and what's the prospect and earning potential. Additionally, I would be watching this basket carefully and constantly (or tracking any changes to the fundamentals).

It's a lot of work. But I can sleep better at night knowing the basket can withstand the test of time.

PS: my basket has less than 10 stocks, compared to a 'diversified portfolio basket' of 20-100 stocks.