Diversifying your portfolio can certainly be a good thing, but there's such a thing as too much diversification. In this Fool Live video clip from Nov. 2, 2020, Fool.com contributor Matt Frankel, CFP and Industry Focus host Jason Moser discuss the concept of "di-worsifying" and what investors should know about it.
Jason Moser: Genghis Ahn, "Can you guys give your definition of 'di-worsifying'?" Matt? Define di-worsifying.
Matt Frankel: It's adding diversity to your portfolio just for the sake of adding diversity to your portfolio. A lot of investors mistakenly believe they need to spread their money nearly equally among all the sectors in the market. Put 10 percent of your money in healthcare stock, 10 percent of your money in industrials, et cetera. I think that is silly. I do not put any money in say, Biotechs, because I don't understand that space very well.
Jason Moser: I'm right there with you.
Matt Frankel: I'm good at analyzing banks. I'm really good at analyzing real estate. So those are where a lot of my money goes. Warren Buffett has said that diversifying is protection against not knowing what you're doing. I don't like to diversify just for the sake of diversifying. Having said that, if too much of my money is getting concentrated in one stock, I will do a little bit of selling to diversify. Apple is a great example, I bought Apple (NASDAQ: AAPL) years ago and ended up doing really well with it, it became like 25 percent of my portfolio, which was a little too much for comfort. I ended up selling half of it to put into some other stocks. That wasn't a sector diversification thing, it was a I don't want to much money in one stock type of thing.
Jason Moser: Yeah. It's also funny. Diworsifying can also play out on the company side. When we were talking about Square (NYSE:SQ) earlier during the show, where a company starts investing in places where it probably shouldn't or maybe doesn't have the same level of expertise or maybe it's going too quickly. I'm not saying that's the case with Square. Certainly, tax prep is in line with, generally speaking, what they do. Do you remember, it wasn't all that long ago where Urban Outfitters (NASDAQ: URBN) invested in offering pizza and like Italian food from their stores? Then you think, is that really, you trying to be like IKEA because IKEA does something that no one else does. That was kind of a weird thing. Businesses certainly too can diworsify and pursue areas where investment dollars don't return the same value for sure. Keep an eye on that.