Monday, 13 August 2012

Diversification and fear of risk

Fear of risk is a legitimate fear - it is the fear of losing money.

Master investors don't fear risk, because they passionately and actively avoid it.  Fear results from uncertainty about the outcome, and a master investor only makes an investment when he has strong reasons to believe he'll achieve the result he wants.

Those who follow the conventional advice to diversify simply don't understand the nature of risk, and they don't believe it is possible to avoid risk AND make money at the same time.  

While diversification is certainly a method for minimizing risk, it has one unfortunate side-effect: it also minimizes profit.

No comments: