It’s a common dilemma most people face that they probably first encounter when it comes to figuring out what their investment strategy should be. Do they concentrate their money on investing in one particular area or do they diversify to minimize the risk?
Arguments can be made for both sides as it’s the classic case of risk vs. security.
On the one hand, if you invest in one particular area and you’re right, you hit it big. If not, you lose big.
On the other hand, if you diversify, you do reduce risk, but your potential in terms of how big of an overall return you can get is limited.
But this dilemma can be applied to other things from a bigger perspective as well, not just your investment strategy.
For example, you might have a ton of business ideas in your head and you might feel tempted to pursue two or three of them at once instead of putting all your eggs in one business idea and pursuing that.
But the trouble with putting all your eggs in one basket is that it’s a scary thought for most people simply because they think they’ll lose it all.
But they forget they might also gain a lot as well.
You don’t even know what will happen, you didn’t even start, yet people automatically assume the worst from the very beginning.
It’s that fear of losing everything that prevents people from going all in.
When it comes to the dilemma of putting all your eggs in one basket, you’ll often hear this famous quote get introduced into the discussion:
“Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket.” - Andrew Carnegie
I agree with that statement and I just want to add one more aspect to it.
When you’re FIRST starting out, put all your eggs in one basket and watch that basket carefully.
THEN, you can diversify accordingly after you learn from all the experience that has given you.
You spread yourself much too thin if you “diversify” in the beginning and you don’t learn as much as well. You need laser like focus on pursuing one venture so you can fully extract the “concentrated” benefits from putting all your eggs in that one basket.
And even though your business venture fails, you still learn a lot. A lot you can carry over into your next business venture to help make it a success. It’s the intangibles that people forget.
So choose the best business idea you have and put everything you have into it.
Best case scenario – you were right. The business is a great success.
Worst case scenario, you fail miserably but you learn a lot of “concentrated” lessons.
Lessons that have been burned into your mind through the fiery branding of real life experience - lessons that you will never forget: the importance of USP, marketing, the law of averages, sales, customer service, etc.
You carry all that with you into the next venture and the next and the next until you finally understand the “system” and how it works because it’s producing great results.
Once you have that, which was the result of continually putting your eggs in ONE basket, and watching that basket carefully and extracting all the “concentrated” value from it, and you do that again and again and again until your current business starts reaping great results and you finally understand the “system”, THEN you can start to diversify using everything you’ve learned from all that experience.
You can take the money your business is making and invest them in businesses that you know will have a good chance of succeeding because they’re following the “system” you’ve learned over time from putting all your eggs in baskets and watching those baskets carefully.
The same model of thinking can be seen with your investments.
When you’re FIRST starting out in terms of investing in your 20s, your investment strategy is aggressive, and while you’re not literally putting all your eggs in one basket, the aggressive mix of your portfolio reflects the idea of it.
And let’s say through that aggressive strategy, you learn through experience and study to identify which sectors will perform well in certain times.
THEN, you can diversify your mix accordingly to what you learned to reduce the risk and to give you a much better return on your investments.
What you’ll find is that when you put all your eggs in one basket in the beginning, when you “risk’ early on, you gain much more “concentrated” value, win or lose and with that, you find it easier to reduce the risk later on.
But if you live your life in fear and try to reduce risk early on, you’ll never gain any “concentrated” value in the form of experiences and lessons that only through risk will you TRULY be able to learn.
So put those eggs in that one basket when you first start out.
Watch that basket carefully.
Regardless of the outcome, you will learn valuable “concentrated” lessons either way.
Repeat the process with another basket.
Learn accordingly again.
And as you keep doing it, eventually you’ll be able to figure out which baskets to put your eggs in and that’s when you can begin to diversify and reap a much better return on your investments.
It’s not either or when it comes to diversifying vs. putting all your eggs in one basket.
There’s an order.
Risk first.
Learn.
And you will undoubtedly be rewarded later.
After all, if there’s no risk, there’s no reward.
