4 thoughts on “Diworsification”

  1. You’re talking about diversification within a portfolio of high-risk investments, which isn’t really diversification in the broader sense.

    *Uncorrelated* diversification, as any sharp hedge-fund manager will confirm, is the holy grail.

  2. Rowan,
    A thought provoking post. I agree the high probability of a loss weakens the case for diversification when investing in early stage companies. However I think your single round illustrative example ignores one of the key benefits of a portfolio approach which is the ability to make follow on investments. For the portfolio approach to be successful the investor has to have sufficient capital to make follow-on investments.

    Issues such as “no selection bias” are challenges of the asset class in general irrespective of your investment strategy

    Overall I think it is a matter of managing resource allocation in terms of capability, time and capital to find a solution that works for the individual.

    Cheers,
    Sam

    1. Agree – I though part of the idea of investing in a large sample of companies was to give you access to follow on investments in successful companies, but the ability to cut your losses on the unsuccessful. As such, Diversify early on, then focus only on those that gain traction.

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