Andrew Carnegie was quoted once as saying, “Keep all your eggs in one basket, then take care of that basket.” This flies in the face of the holiest of the financial holy grails: diversification. Jim Cramer even has a segment on his show called, “Am I diversified?” where callers list 5 stocks in their portfolio and Cramer announces his verdict either yes or no.
So why would a man who was the richest the world had ever seen tout a philosophy contrary to general thinking? Why would Warren Buffet have the majority of his holdings in 30 to 35 stocks and not the “broad based index funds” everyone trumpets? He averages 28% return (not the 8% – 12% the S&P has historically returned).
Why? In a word: FOCUS
The business owner who puts all his eggs in one basket isn’t foolish, he’s committed. I’ve seen business owners cash in college savings accounts, cash in life insurance policies, sell almost everything they owned and mortgage their home to the max in order to fund their company. These guys were my partners in business. We made it because of commitment and focus. ALL our eggs were in one basket. I’ve watched others who hedged their bets and had back up plan after back up plan. They didn’t make it. Their plans weren’t what was wrong, it was their commitment.