Diversification vs Overdiversification: What Investors Must Know
If you manage serious wealth, you've probably heard the same advice a hundred times: "Don't put all your eggs in one basket." Fair enough. But somewhere along the way, a lot of investors — including some very sophisticated ones — took that advice and ran too far with it. They now own 14 mutual funds, 60 stocks, 6 PMS strategies, 3 AIFs, and a scattering of unlisted bets they can barely recall the thesis for. Ask them what they actually own, in aggregate, and most can't answer. Ask them why they own a particular fund, and the honest answer is usually "my relationship manager suggested it" or "I read about it somewhere." This is the paradox at the heart of modern portfolio construction: diversification is one of the few genuinely free lunches in investing, but past a certain point, more of it doesn't protect you—it just dilutes you. Warren Buffett's business partner Charlie Munger was famously skeptical of broad diversification, ar...