> You've no doubt heard the phrase "don't put all your eggs in one basket" Buffett and Munger's response to that is to "put all your eggs in the same basket, a

> You've no doubt heard the phrase "don't put all your eggs in one basket" Buffett and Munger's response to that is to "put all your eggs in the same basket, and watch that basket". At various times both men have been very heavily concentrated in their best ideas (Buffett was once about 75% into GEICO many decades ago -- admittedly that's extreme even for him, but many value investors aim for less than 10 investments). They say that diversification is often "diworsification" (I think that's a Peter Lynch phrase... or maybe Phil Fischer) because it's impossible to know that many companies well enough to have high confidence, and because your 20th best idea will never be nearly as good as your best and second best ideas, so it's often better to just add more to your best ideas. Of course, the caveat of this is that you must know what you are doing. Diversification is insurance against not knowing what you're doing, and index funds are probably the best strategy for someone not putting in the time (which is most people). But if you take investing seriously, high diversification is not always necessary or even desirable.