Most wealthy individuals build their fortunes through a single line of trade or business. For example, Bill Gates amassed his wealth through Microsoft. However, once they achieve significant success, they typically diversify into other areas. Today, Bill Gates owns a large portfolio of different assets other than Microsoft. In other words, they concentrate first, then diversify later.
Accomplishing anything meaningful requires a certain amount of scale, experience, time, or critical mass. Before reaching this inflection point, returns tend to be modest—if any at all. This concept echoes the 10,000-hour rule, popularized by Malcolm Gladwell in his best-selling book Outliers. Gladwell argues that it takes about 10,000 hours of deliberate practice to master any skill.
Concentration is essential because our time, money, and resources are limited. Focusing our efforts on a promising venture or career—especially where we have a comparative advantage—maximizes our chances of success. For instance, as narrated in his book, Source Code, Bill Gates was years ahead of his peers in computer programming when he co-founded Microsoft with Paul Allen.
Focusing on a single venture or career allows you to develop deep expertise in your chosen field. Over time, this experience compounds, leading to disproportionately high returns.
Once you’ve generated significant returns through concentration, it’s wise to use the surplus to diversify into passive or less demanding ventures. For instance, a successful dentist should consider investing in assets like real estate, bonds, or equities once their dental practice reaches a certain scale.
Diversification helps to de-risk your concentrated venture and expand your wealth. By investing in uncorrelated assets or businesses, you reduce the likelihood of substantial losses while preserving and growing your returns.
In conclusion, it is prudent to initially focus on one or two areas that you are exceptionally good at. Only after succeeding at your chosen craft should you diversify into other areas. Remember, fortunes are built through concentration and preserved through diversification.
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