Is your portfolio starting to resemble a bloated restaurant menu? Over-diversification might be holding you back from achieving the exceptional returns you deserve.
Celebrity chef Gordon Ramsay’s Kitchen Nightmares offers a clear lesson. Struggling restaurants often fail because they try to serve too many dishes, thinking variety will attract customers.
Instead, it leads to lower quality and inventory chaos in the kitchen.
Ramsay’s fix? He cuts the menu down to a few standout options, making them great.
The same principle applies to investing, spreading your portfolio too thin leads to mediocre performance.
Why? Because managing and understanding hundreds of companies is nearly impossible. But when you focus on a carefully selected group of investments – say, fewer than 30 – you gain clarity, control, and a better chance at generating remarkable returns.
Warren Buffett, one of the world’s greatest investors, said, “Diversification may preserve wealth, but concentration builds wealth.”
And he’s right. Research by Hendrik Bessembinder shows that between 1926 and 2016, just 4% of companies created all the wealth in the U.S. stock market.
The key to success? Owning those standout performers because owning too many investments means you’re likely holding a lot of average performers and missing out on the big winners.
Warren Buffett is widely known for his remarkable investment success, in particular, he has had twelve great winners in his career but made the majority of his wealth from just four of those winners. This is all attributed to his patience, concentration and discipline in never interrupting the compounding returns on investment unnecessarily.
Concentration isn’t reckless—it’s strategic. By dedicating more time and energy to fewer extraordinary investments, you reduce the risk of spreading yourself too thin and increase your ability to truly understand and capitalise on each opportunity.
Remember, investing isn’t about owning more – it’s about owning the right things. That is what ultimately matters in the long run.
Awet Ghirmay, Head of Investment Research
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Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
