Who said?

dunkamania

Who said

"Diversification is protection against ignorance"

and what do people think of this controversial/contrarian view.

sceptre

The precise quote comes from Warren Buffet, though it's missing the following bit where he said that if you don't feel ignorant the need for diversificataion goes down dramatically. Then again, for someone who doesn't know and doesn't know they don't know, how would they know.

Keynes used to say pretty much the same thing, expressing it in a slightly different way and given that it's basically a warning about the dangers of putting all your roundy objects that come from chickens in one wicker basket, the saying's been around for rather a while.

As for what I think of it, only a fool goes running around the farmyard willy-nilly with all his eggs in one basket. Put most of them in one basket if you like but some small concept of prudence would tell you as a general rule that if something does go badly wrong and you've all your cash in one place that happens to be the place where something went badly wrong, you're screwed.

homeOwner

dunkamania wrote:

and what do people think of this controversial/contrarian view.

It doesnt seem at all contraversial to me. Its sage advice.

dunkamania

Full marks for sceptre,it was of course a quote from Warren Buffet.
I should have included more of what he said though.

homeOwner wrote:

It doesnt seem at all contraversial to me. Its sage advice.

The controversy stems from the fact that Warren Buffet is making an arguement against diversification.His theory is contray to most investment theory.He rejects Cap m, Beta,non systamatic risk,etc.

His approach seems to be,buying undervalued companies that have a proven growth record,as cheaply as possible,and waiting for the market price to adjust to the fair value price.

His opinion is that while following this approach,if you try and diversify you have to include companies that arent as good,effectively decreasing your expected performance.