I had formed the habit of scattering my investments all over the place. This I have come to realise is a mistake. While the merits of diversification are unquestionable, there is a downside to early diversification.
Think of the young eager man trying to gain the attention of a beautiful girl. This young man would do best to focus his attention on the most suitable girl, instead of scattering his efforts with many possible suitors. The girl who receives concentrated attention will eventually yield to the affections of the young man.
Same thing with business or investment. Imagine having a capital of one million shillings and then spreading it into ten different things. This reduces the potential return of the successful venture. Most fortunes are made in one or two things and then the successful person divests their holdings into different things. Think of Bill Gates who founded Microsoft. His fortunes were made from Microsoft. He only began to diversify when he had acquired sufficient wealth.
The same thing applies to career people. I know people who have reached the pinnacle of their careers in one firm or profession. Think of the rich lawyers, accountants, engineers, musicians, artists, etc. around town. So we can see that there is value in concentration. The old adage may hold some truth; a rolling stone gathers no moss.
Concentration on a few things allows you to develop deep expertise in your field. This deep expertise compounds into a valuable asset and you are able to earn above-average returns. Malcolm Gladwell popularised the concept of 10,000 hours. The basic assertion is that it takes about 10,000 hours of deliberate practice in any field to become an expert. You can’t accumulate this time if you keep jumping from one thing to the other.
It is best to concentrate within your circle of competence. Your circle of competence is the intersection of the things you are good at and the things you are passionate about. For instance, I believe I am good at mathematics, analysis, and finance. I am also passionate about financial education. It only makes sense that I concentrate on investing in the capital markets in things like treasury bonds and stocks instead of wasting energy and time on farming. I can still pursue farming as a hobby but it should not be my primary preoccupation.
You don’t want to be a jack of all trades but a master at none. It is best to specialise in a few things and then become a generalist with all the other stuff. The generalised specialist is a new trend in the world. You need the basics in many fields but then specialise in a few things where you have the most potential.
This enables you to make fortunes through concentration and maintain them by diversification.
Unlock your true potential 