Diversification limits needed with sound decisions from "summary" of Essays of Warren Buffett by Lawrence A. Cunningham
Warren Buffett believes that diversification is a "protection against ignorance," but it is not necessary if an investor is capable of making sound decisions. He argues that it is better to focus on a few investments that one understands well rather than spreading oneself too thin across a wide range of assets. Buffett's strategy is to invest in businesses that he believes will perform well over the long term, rather than trying to predict short-term market movements. He emphasizes the importance of doing thorough research and analysis before making an investment, so that one can be confident in the decision. According to Buffett, diversification can lead to mediocre results because it dilutes the impact of one's best ideas. By focusing on a smaller number of investments, an investor can concentrate their resources and attention on those opportunities that have the highest potential for success. Buffett's approach to investing is rooted in the idea of buying businesses, rather than stocks, and holding onto them for the long term. He believes that this approach allows investors to benefit from the growth and success of the companies they own, rather than being at the mercy of market fluctuations.- Warren Buffett's philosophy on diversification emphasizes the importance of making well-informed decisions and focusing on a small number of high-quality investments. By doing thorough research and analysis, investors can increase their chances of success and avoid the pitfalls of excessive diversification.
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