Livewire: The myth of diversification

Modern financial theory says that diversification will reduce risk, but how well can you understand a business if it’s one of hundreds in your portfolio? “A lot of people with more diversified portfolios, own a lot of things but know very little about them. We prefer to invest in a small selection of high quality businesses and know a lot about them.” One such example is a Chinese company with a dominant market position, huge barriers to entry, and consistent high returns on capital.

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