Had Your Way?

It's interesting. Warren Buffet, the second richest man in the world, says that diversification is for wimps. According to him, people diversify because they are risk averse and are uncertain about how their stocks would perform in the future. He says that people diversify when they don't know their stocks inside out and that they should first learn what their stocks have to offer. If that is done, uncertainty would go away and their would be no risk involved. That's what he does too, it seems. But then he is a board member of all his companies, and might be using insider information to 'predict' how the stocks would behave in the future.

But wait a second. What about Berkshire Hathaway? What about it's subsdiary companies? If you take a look, you will notice that he has invested in just about any kind of company, be it candies or furniture or insurance or newspaper. Is that not diversification? Is that not being risk averse? Or is it that he has too much cash and doesn't know what to do with it, thus, ends up buying random companies.

This is just a thought ( and a discussion during our finance class tonight). Who am I to comment on his investing philosophies? I am just a mere mortal who is trying his level best to learn the 101s of finance :).