Warren Buffett on Diversification and Risk:
Wide diversification is only required when investors do not understand what they are doing.
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Warren Buffett
Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing.
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Warren Buffett
Risk comes from not knowing what you’re doing.
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Warren Buffett
A passive investor is a person who is ignorant and does not know much about the company that he or she buys the shares in. This kind of investor will diversify. An active investor, such as Warren Buffett, knows a lot about the company that he or she will buy the shares in. This kind of investor will focus on a few companies and does not need to diversify.
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