Buying so many things that you have no idea what you own is not diversification. True diversification means holding assets that are not highly correlated with each other—different sectors, asset classes (stocks, commodities, currencies), or geographies that don't all move together in the same conditions.
Diversification is genuinely hard to do well. It is recommended if you already have substantial wealth to protect. But if you don't have much capital yet and you want the potential for huge returns, you must use concentration instead.
Diversification is protection against ignorance. It makes little sense if you know what you're doing.
The biggest returns come from concentrating capital in unique, defensible opportunities (monopolies) rather than spreading it across many competitive ideas where margins get crushed.
CONCENTRATION VS DIVERSIFICATION
CONCENTRATION (3-5 IDEAS)
Far easier to keep a close eye on all positions. Higher potential upside with high-conviction ideas. Best for building wealth.
DIVERSIFICATION (20+ STOCKS)
Returns will track closer to broad market (SPY/S&P 500 baseline). Better for protecting existing wealth. Harder to manage effectively.
The more you diversify, the closer your returns will track the broad market. If you want more potential upside and you truly have high-conviction ideas, concentration is best.
THE VECTOR RIDGE APPROACH
This is exactly how our Long Term Alpha and Portfolio Pro products are structured: focused, concentrated positions in assets we have deep conviction in (strong fundamentals, favourable macro, clear uptrends). We diversify only across truly uncorrelated opportunities, not just for the sake of spreading bets thin.
Concentration with conviction has driven the outsized audited returns—diversification alone rarely does.