Everyone from investment advisors, business school advisors, Jim Kramer, etc. espouse the ideology of diversification. They tell you that in order to grow your assets and reduce your risk, you should diversify because you don’t know what will work. Well, this strategy works fine as long as the world doesn’t go into a deep recession. The thing is, the worst happened in 2008 - everything went down, commodities, stocks, bonds, and real estate. It’s like the A-Bomb was dropped and everyone who diversified lost money. I was well diversified as well, investing in bonds, stocks, foreign, domestic, etc. I definitely wasn’t shielded. It’s time to shift strategies not only in investing, but also in business.
We need to have a fresh perspective. The whole notion of diversification turns out to be a reasonable way of protecting assets because generally speaking not everything goes down at the same time, some stuff actually becomes more valuable thus protecting your assets.
Now, if you want to create wealth, how many people on the Fortune list of billionaires do you think diversified their way to the top? Bill, Carlos, Steve, Warren? Ok, maybe a little Warren, but even he had most of his wealth tied up in Berkshire. Diversification is a terrible way to create wealth. Concentration, on the other hand, creates wealth. It can also create ruin! Isn’t life a bit more exciting if you were capable of becoming rich or poor and not just average?
Here are some of my random thoughts on how to “un-diversify” in this environment and make some exciting bets in a time when everyone is thinking about what they should do and unable to.
1) Reduce your household monthly spending. If you have a lot of expenses, you’re stuck and unable to take concentrated risks. Reduce your spending, allow yourself the ability to take more risks in this environment.
2) Focus on one day job. Forget about doing a startup and holding a day job. Do one job and do it well… Make it your startup. Be like Bill, Steve, etc. They didn’t have multiple day jobs. If you can’t do it now, set a goal to get there.
3) Build equity for the long-term. Don’t day-trade your startup - i.e. build for the flip, flip homes, etc. Focus on building long-term and you’ll have more options short and long term than you can imagine. What does long-term mean? Get profitable.
4) Stop watching the market. CNBC is financial porn. Kick the habit. If you can’t stop watching, sell everything and get into cash so you can sleep at night and keep your focus on building equity. Better yet, just buy US treasuries and call it a day, if the US goes bankrupt, you and I have much bigger problems to worry about. You have more than enough risk in your business.
5) Write down your 30-60-90 day plan. You can ill-afford these days to be floating around wondering what you should be doing next. Have that plan hanging in plain sight at all times, as soon as you start straying get yourself back on track by reviewing your 30-60-90 day plan. Review it, memorize it, and adjust it if necessary.
6) Give - I’ve mentioned this before, it will help you focus and concentrate your efforts by giving you more perspective. It truly is the secret to success.
7) Get Buy-in - from your team. Everyone should have the same exact mission and vision for the company. They should all be pointed in the same direction. If you don’t have buy-in, get them off the team now. Or, force yourself to create a vision that everyone can get behind. Diversification of vision and mission across team members is a recipe for disaster and it sucks!
Reduce your stress level. Everyone is so stressed, what for? Like stress will solve your problems or create a successful business? Work out, relax, don’t worry even when you are working. You’ll live longer and trust me you’ll be able to concentrate better.
What do you think? Do you agree that diversification is BS? Or, should we diversify more? Let me know.