by Matthew Bon

Created on: May 08, 2009

Some of the wealthiest and risk adverse men and women in the world do not attempt to diversify their portfolio. Quite the opposite, they focus their investing into one specific area of the market. There are many reasons for this which a short article will not allow for me to give an explanation justice, but we shall attempt to provide some of the answers to those that we can assume are still novice investors.

What are the cons against investing a diversified portfolio? Diversification tends to produce an optimum outcome in a rising, or bull, market where the standard indices are increasing overall. In such bull markets, the only way to match the market or follow it is by buying the most accelerating stocks and continue pumping those stocks until something like what happened in 2000 and in 2008 occurs and you are scrambling to pick up the pieces. This gives rise to new mutual funds that will diversify over the index, managed by brokers that are more interested in making a commission instead of making their investor money, and thus will not be as informed about the stocks that the investment has allocated. Knowledge is power in the market and the market loves someone with zero power.

When your focus is like a laser and you become so well rounded in the field that you intend to invest in, you have a better chance of dominating that market. Take Donald Trump for example, although he has broken out into different realms of investment, he began and created a impressively successful real estate portfolio. He focused his attention into one specific area that he understood, that he was even taught by others in his family, and made educated decisions in order to hedge his bets against the potential negative outcomes. Another example is Warren Buffet. He too has created a portfolio into many different areas, but he did not invest in the company that he purchased until he had a thorough understanding of that company.

Focus investing demands that the investor become educated in the investment that he or she is interested in. It is requisite that you understand the day to day activity of the market, business, or entity that you intend to invest in. Understand the numbers of their business portfolio, both past and present. With the limited knowledge you will obtain in diversification, you may get some winners, but you will get many losers, and your winners will only outweigh your losers in a bull market. Should you focus invest, the probability of selecting a profitable investment will dramatically increase.

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