Wide diversification is only required when investors do not understand what they are doing.
Source: Berkshire Hathaway Letters · Investing
Core Idea
Buffett argues that heavy diversification is mainly a protection for ignorance; investors who truly understand their investments can confidently hold fewer, more carefully chosen positions.
Practical Application
Apply this by focusing your portfolio on a few businesses you deeply understand, instead of owning many you barely know, so your conviction replaces blind diversification.
Why It Matters
The insight is that superior results come from concentrated investments in well-understood businesses, while excessive diversification often signals shallow knowledge rather than genuine risk management.