Sorry Warren Buffett much as I admire your investment acumen , I do not agree in your diversification theory based on the following reasons:
1. Lack of focus: It is very tedious physically and mentally to monitor a portfolio of stocks. I believe you need to buy a stock that a market maker intends to play. Just buy at the same time when they are accumulating the stock and unload the escalated stock price show sign of losing the upside momentum.
2. Higher investment cost incurred compared to 1 stock: you have to pay minimum brokerage for every stock that you buy which makes the investment cost higher, the money could have been used to purchase more of the stock if you had only bought 1 stock. Let's say you have $5,000 to invest. Based on your diversification theory, you will have to buy a few stocks. To make calculation simple, 5 stocks and each stock plus brokerage and charges cost $1,000.Then .every stock you have to pay 40 minimum brokerage=$200. My theory is buy 1 stock then the brokerage based on 0.0275 you will only need to pay $137.50. The more stocks you diversify the more minimum brokerage you have to pay.
3. Slower trade execution in purchase and sale: to buy/sell a portfolio of stock. Sometimes while buying 1 stock you may miss the opportunity of buying the rest stock at a higher price in a bull market. Similarly, while selling 1 stock you may end up selling the rest of stocks at a much lower price especially when the market makers are massively unloading.
4. It is difficult to pick 1 performing stock so it is harder to pick a portfolio of performing stocks. You may end up making on some and losing on the other stocks.
5. It is more stressful to monitor a portfolio of stocks
I don't look at chart or finances, I just focus on the accumulation of a stock by the big players because books can be cooked. Good stocks and bad stocks both can go up or go down. The difference is good stocks will break new high but bad stocks eventually will break new lows. This is because the bad stocks are pushed up to be sold to unsuspecting retail players. To me, so long as I can make money I will call it a good stock. Play when there is chance for me to make money. Stop playing when the chance of losing is higher. For every purchase, there must be a stop loss price and take profit when the stock is losing momentum. I do not accumulate and wait for the stock to be played up. I just buy when the stock is ready to be played up after considerable accumulation by the big players. That way, I won't be parking my money in the stock market when I could be earning interest from the bank. Playing stock is just like passing the parcel game, you don't want to to the last person to be carrying a dying stock and lose the chance of making from a better performing stock. Don't be emotionally attached to the stock. If you make a mistake in picking a wrong stock just cut loss and learn from the mistake instead of holding on to a non performing stock. Try not to repeat the mistake made. If you keep picking the wrong stock then you must have been repeating the same mistakes.. I wonder if Waren Burnett agrees with my theory?
Extracted from my manuscript