Diversification is something that stock brokers came up with to protect themselves, so they wouldn't get sued for making bad investment choices for clients, says commodities bull Jim Rogers.
"Henry Ford never diversified, Bill Gates didn't diversify," Rogers told Business Week.
"The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket."
Rogers notes that many diversified investors have lost huge sums of money over the past couple of years and advises investors to stick with what they know and forget about competing with Warren Buffet.
“If the world economy is going to revive, commodities are going to lead it back up,” Rogers says.
“If the world economy is not going to revive, commodities are still the place to be — especially with governments printing so much money.”
Diversification is the end result of applying asset allocation strategies, which derive from modern portfolio theory, an offshoot of economics from the early 1950s.
Asset allocation holds that investors should combine various asset classes that do not correlate perfectly to achieve a diversity that protects some asset classes when others are adversely affected.
"There is a saying that you have to concentrate to get rich and diversify to stay rich, and over the past couple of years that has not worked,” Paul Vaillancourt, senior vice-president of Franklin Templeton Investments, told Canada.com.
“I don't want to say diversification is a myth, but it is overdone."
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