High Conviction Wins
Conviction beats blind diversification.
What This Means
Most investors believe more diversification automatically means less risk.
But there’s a difference between smart diversification and owning so many investments that nothing meaningfully impacts your results.
I believe over-diversification has become one of the biggest hidden drags on long-term performance.
Many portfolios today are spread across dozens of funds, sectors, styles, and positions. On paper, it looks “safe.” But in reality, investors often end up owning a watered-down version of the same market exposure over and over again.
When strong investments are diluted too heavily, long-term growth can suffer.
That doesn’t mean taking reckless risks or concentrating everything into one stock.
For us, it means being intentional.
We prefer focusing on a smaller number of high-conviction investments and areas of the market we believe have strong long-term potential. Index funds still play a major role because they provide broad exposure without unnecessary complexity.
This also becomes important during major market selloffs. When markets truly correct, many assets tend to decline together anyway. Owning more positions doesn’t always create the protection investors expect.
At the end of the day, successful investing is usually less about owning the most positions and more about:
- owning quality investments
- staying disciplined
- and giving compounding time to work
Conviction matters.
And sometimes simplicity works better than excessive diversification.
Common Questions
Will diversification help in a market downturn?
For normal short-term pullbacks, diversification can absolutely help reduce volatility. But during major market selloffs or sustained corrections, most asset classes tend to drop together.
That’s because investors are often taking risk off the table and raising cash across the board. In true market declines, very few assets are completely exempt.
How do you invest with high conviction without taking too much risk?
We like to use index funds because they allow us to have high conviction in certain parts of the economy without taking on the single-stock risk that comes with individual companies.
How many holdings are considered “too many”?
There’s no magic number. The bigger issue is whether you’re adding positions because they truly improve the portfolio — or simply because owning more feels safer.
Also, be mindful of overlap between the funds you own. Many investors unknowingly own multiple funds that hold very similar investments underneath or simply own a little bit of everything, which often becomes unnecessary.
Remember This:
Quality and conviction matter more than the number of positions you own.