There is a popular aphorism in the market that diversification is king. Those who diversify will, over time, outperform those who remain hyper-concentrated. I have always disagreed with that concept. Perhaps I am just an Icarus, but I have always thought that diversification is a tool for those with a lesser risk tolerance. Or, as Warren Buffett said, “Diversification is a protection against ignorance.”

I have always had a healthy risk tolerance in the market, but in general, there is nothing wrong with having a low tolerance or a high tolerance. Whatever feels right for you is right for you, which is why it has always peeved me that people are told they are wrong for not being diversified.

Those who have solely been invested in tech over the past 20 years, with little to no diversification, would be worlds richer than those who just invested in the broader S&P.

But really, in my opinion, being as un-diversified as possible (but in a smart way) is the correct move. The companies at the top are only becoming more and more powerful. They have advantages in every single facet of business. The only thing that can beat a monopolistic company with little to no competition is laziness and a lack of innovation, which is why Google will be a shell of its current self in 20 years.

Microsoft, Apple, and Nvidia make up 21% of the S&P 500. The only way to beat the S&P (the broader market) is to either buy stocks outside of the fund or to be more concentrated in certain positions. Apple is 6% of the S&P but is 10% of my portfolio. Microsoft is 7% of the S&P but is 16% of my portfolio. For every dollar the S&P goes up because of Microsoft, I get $2.30. For every dollar the S&P goes up for Apple, I get $1.70.

If you believe in your heart of hearts that both Microsoft and Apple will outperform the broader S&P over the next decade, you should weight those two companies more than the S&P 500 weights them.

Being concentrated is, arguably, so much riskier. You are forcing yourself to minimize your positions in companies you feel extremely confident in and are, therefore, also forcing yourself into positions you feel less confident in.

If you have 50 positions spread across multiple industries, you might as well just buy SPY or VOO at that point. Your cap is basically however well the broader market performs and your floor is much lower than you believe. It is far more advantageous to be hyper-concentrated in excellent companies you know inside and out.

On top of that, the general market is doing poorly right now. There are basically a few winners and hundreds of losers. Why would you want five winners in your portfolio and 20-40 losers?

I have not written this very well because my roommate has not let me go to sleep the past few nights, so I’m exhausted, but basically what I am saying is that diversification is wildly overrated. You are forcing yourself to pick losers for the illusion of safety. Invest in companies that you have identified as being the most successful, live with the risk, and accept when you get pounded by a position. Eventually, you will come out on top.