You’ve heard the saying a million times: “Don’t put all your eggs in one basket.” It’s the first piece of advice anyone gets about investing. But in the world of most financial advisors, this idea has been taken too far.
The result? What some call “diworsification”—a portfolio so spread out that it owns all the market’s laggards right alongside the winners. In other words, returns that can rarely beat the average, after fees.
It’s led to most of the investment and financial advisor industry creating portfolios so diversified, owning so many hundreds of companies through ETFs and funds, that they become a mirror of the market itself. This might make both advisors and their clients feels safe, but what it’s actually done is create portfolios so diluted that it’s impossible for it to outperform.
It’s like wanting to bake an award-winning cake but being forced to use every single ingredient in the grocery store—the good, the bad, and the bland.
The Science Behind Concentration and Diversification
Decades of studies, going back to a landmark 1968 paper in the Journal of Finance, show that diversification’s benefits don’t increase linearly. In fact, most of the risk reduction happens with just 20 to 30 carefully chosen individual stocks. Adding more beyond that point flattens the curve—meaning the extra stocks don’t reduce risk but do dilute the impact of your best ideas.
Think about it like this: the first few stocks you add dramatically lower your risk. By the time you reach 20 or 30, you’ve captured nearly all the benefit. But if you keep adding, say, hundreds of stocks—as you would in an S&P 500 ETF—you’re not getting much more protection. Instead, you’re watering down the winners with a sea of average performers.
A Lesson from the Best Investors
This isn’t just a theory; it’s how some of the most successful and thoughtful investors on the planet operate. Take Warren Buffett. He once said that “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
Berkshire Hathaway’s portfolio is famously concentrated, with its top five holdings often making up more than 75% of the total. Buffett isn’t spreading bets thin; he’s making large, confident investments in businesses he knows well.
This approach is echoed by elite hedge funds, family offices and sophisticated wealth managers. These wealth managers focus their capital on 15 to 25 high-conviction ideas—companies they’ve researched thoroughly and believe will outperform.
Look at the Bill & Melinda Gates Foundation Trust. Unlike what you’ll typically find with a portfolio managed by your financial advisor or financial planner, their portfolio isn’t invested in a large basket of index funds.
67% of The Gates Foundation Trust is concentrated in just three stocks.
These wealth managers are making deliberate, meaningful investments, not just buying a little bit of everything, which is the standard approach for most registered financial advisors.
Then there’s another hidden cost that often goes unnoticed: internal fund fees. Each ETF and mutual fund charges its own expense ratio, on top of your advisor’s 1% fee. And when you own multiple funds, these fees stack up. Over years and decades, these internal fees compound and quietly erode your returns and chip away at your wealth.
A Handcrafted Approach to Your Wealth
That feeling of safety from owning hundreds of stocks can be an illusion and holding you back from meaningful growth. True wealth management isn’t about buying a pre-packaged product; it’s about making deliberate choices.
The world’s most best investors—from hedge fund managers to family offices—prioritize one thing above all else: control. It’s the control to make meaningful investments, manage tax implications with precision, and avoid owning the laggards.
This is the core of our philosophy. As a fiduciary financial advisor and Certified Financial Planner (CFP)®, we don’t just buy the market; we build portfolios designed to give you that same level of control. This means doing the intensive work to select the best businesses.
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