Some retail investors disagree that diversification is your friend and like to quote Warren Buffet's saying.
"Diversification is Nothing More Than Protection Against Ignorance." - Warren Buffett
I advocate diversification for the purpose of risk control as investing in stock market by nature is risky.
Doing the Maths
For example:
You have $100K as investing capital and invest in a portfolio of 10 diversified stocks - $10K per stock. You are taking a risk of 10% of your investing capital per stock.
If unfortunately bad thing happen to one of your stocks in your portfolio and get wipe out.
Your portfolio lost 10% and your investing capital is down to $90K. This $90K capital will require an average 11.3% returns on 9 stocks to break-even. Do you think it is easy to achieve an average 11.3% returns for 9 counters.
But what if your weight-age of each stock is only 5% of your capital or total of 20 diversified stocks, then the portfolio will require 5.3% returns to break-even. An average of 5.3% returns on 19 counters may be achievable.
See the table below for different weight-age:
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