Diversification reduces downside risk

Most investors get crushed by lack of diversification eventually.  Unexpected events will banktrupt many investing strategies, even though they worked for years.

Some popular quotes illustrate this wisdom:

Warren Buffet“We usually have fairly large portions (5% to 10% of our total assets) in each of five or six generals, with smaller positions in another ten or fifteen.”

Benjamin Graham: “Diversification is an established tenet of conservative investment.”

Nassim Taleb: “Keep 90% in maximum safety. Keep 10% in maximum risk.”

Marc Faber: “Diversify across geography and assets with 25% in precious metals, 25% in equities, 25% in real estate, and 25% in cash/bonds”.

Classic: “Never put all your eggs in just one basket.”

Paul Samuelson: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

Sir John Templeton: “Diversify. In stocks and bonds, as in much else, there is safety in numbers. In my 45-year career as an investment counselor, humility did show me the need for worldwide diversification to reduce risk. That career did help me to become more and more humble because statistics showed that when I advised a client to buy one stock to replace another, about one-third of the time the client would have done better to ignore my advice. In other endeavors, humility about how little I know has encouraged me to listen more carefully and more wisely.”