The Diversification Myth: What Most People Miss About Buffett's Iconic Words
Buffett never said to diversify everything, he simply said to understand what you're doing
Everyone loves to quote Buffett on diversification.
They’ll throw out the line about how "regularly investing in an index fund can outperform most professionals" like it’s gospel. And it’s good advice—for a certain type of investor.
But the real lesson is in the next layer down.
Because Buffett also said this:
“If you are a know-something investor… conventional diversification makes no sense for you. It is apt simply to hurt your results and increase your risk.”
Translation:
If you understand what you’re doing, spreading your bets too wide doesn’t protect you…it weakens you.
Diversification is a safety net, not a strategy.
For most people, diversification feels safe. Rather than trying to pick winners, you’re simply trying to avoid blowing it with major losers. And if you don’t understand what you’re investing in, that makes sense.
But if you’re more sophisticated—you go deep, you know how to evaluate businesses, teams, deals, and upside—it’s a different game entirely.
Buffett didn’t build Berkshire by owning 100 stocks.
He built it by placing concentrated bets in companies he understood well and believed in deeply.
As Robert Hagstrom puts it in The Warren Buffett Way:
“In Buffett’s opinion…he believes that his success can be traced to a few outstanding investments. If, over his career, you eliminate one dozen of Buffett’s best decisions, his investment performance would be no better than average.”
Decades of investing, billions of dollars, and the greatest investor to ever live…and it all boils down to roughly 12 of his best bets.
That’s the shift. It’s not about being reckless. It’s about being informed enough to focus.
Is this a financial strategy or a personal default?
Founders do this all the time (myself included)…we diversify not just capital, but attention.
One offer isn’t converting? Build a second.
That audience isn’t responding? Launch something new.
Revenue not where you want it? Try another channel, add another platform, make another hire.
It feels productive. It feels strategic.
And maybe sometimes it is.
But it’s often just avoidance - avoiding the hard questions, research, discomfort, and diligence that come with going deeper into what’s already in front of you.
There’s a time for exploration, and there’s a time for depth. Don’t diversify out of your time and money out of habit when what you need is more depth.
Focus isn’t risky when you’ve earned it.
This is what so many people confuse.
Diversification can feel like insurance. But when you actually understand your investments…when you’ve done the work, learned the ins and outs, made the mistakes, and survived to tell the story…it’s a distraction.
Don’t take it from me, take it from Buffett himself when speaking about a “know-something investor”:
“I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite rather than simply adding that money to his top choices-the businesses he understands the best and that present the least risk, along with the greatest profit potential.”
If you’ve got one product that works, one core customer that’s buying, one channel that converts…why are you building five more?
More isn’t safer. It’s just noisier.
The real risk is shallow conviction.
When you haven’t done the work, spreading out capital, attention, or effort gives the illusion of control.
It’s activity masquerading as productivity.
But when you’ve done the work—when you understand the upside, the downside, the edge—it becomes irresponsible not to focus.
That’s what Buffett was really saying.
Don’t diversify by default. Earn the right to concentrate.
And when you have that clarity, stop pretending you need to hedge your way to progress.
How does this land with you?? Do you resonate with this, or do you have objections of your own?
Drop a comment below and let me know!
📚 Excellent Books on Buffett (ordering through these links supports Startup Stuff):
The Warren Buffett Way by Robert Hagstrom (Kindle version)
Buffett and Munger Unscripted by Alex Morris (Kindle version)
The Essays of Warren Buffett by Lawrence Cunningham (Kindle version)
👥 Join the Crew:
Startup Stuff is for founders who want to build sharper, think cleaner, and act with more intention—not just stack hustle on top of chaos.
If that’s you, you’re in the right place.
Subscribe below to get weekly drops that help you think like a strategist and move like a builder.