It comes down to competition, information, and control. When you go for maximum diversity in big markets (like a big REIT), you're competing against a big pool

It comes down to competition, information, and control. When you go for maximum diversity in big markets (like a big REIT), you're competing against a big pool of smart money. There are going to be fewer pricing errors to exploit. You don't have more information than other players, and you don't have any particular control over the management of the investment. If instead you are an expert in one small market, competing against a smaller pool of other players, you are going to find more pricing errors to exploit. And you are going to achieve much greater control over the investment, so if you happen to think you're an above-average manager (or chooser of managers), you can improve your returns above average. Diversity isn't everything. It can actually hurt, if it means you're investing in many things you don't understand well, vs a few things you do.