Angie · learn
Diversification
Holding enough uncorrelated positions that no single one can ruin you. It removes company-specific risk and cannot touch market risk.
Updated 2026-09-05
Diversification is holding enough positions, uncorrelated enough, that no single outcome can ruin you. It is the one thing in investing that improves your position without requiring you to be right about anything.
It works on non-systematic risk and does nothing about systematic risk. Twenty carefully chosen stocks remove most company-specific risk; two hundred remove barely any more. Adding names past that point mostly buys the market return with extra steps.
See also
- Non-systematic risk — Risk specific to one company or industry. It can be diversified away, so the market does not pay you for carrying it.
- Systematic risk — Risk affecting the whole market at once. It cannot be diversified away, which is precisely why investors are paid a premium for bearing it.
- Correlation — How closely two things move together, from −1 to +1. Diversification depends on it, and it has an unhelpful habit of rising toward 1 in a crisis.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
