Diversification Means Buying Different Assets in Different Places
Chapter 5 of The Rational Investor
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If you want to be a great investor, embrace these four words: Buy, diversify, never sell.
Those four words are the mission statement of this entire book. To this point, we have spent a lot of time discussing why you need to “buy.” Now, let’s talk about diversification.
“Diversify your portfolio.” It’s a phrase that has become so common that even people who have never invested a single dollar in their life have heard it.
Diversification is a way of managing risk. “Diversifying your portfolio” is another way of saying e “don’t put all your eggs in one basket.” If you have a dozen eggs and decide to carry them all in one basket, you risk losing all of your eggs if you drop the basket. If you have a dozen eggs and put each one in its own basket, even if you drop a basket and break an egg, you still have 11 more eggs.