Question · Strategy
When should I diversify vs. focus?
The Short Answer
Focus when you're in a stable environment with a clear winning strategy - concentration beats diversification when you're confident. Diversify when the environment is uncertain or you're not sure which bet will pay off. Diversification is insurance against being wrong.
Biological Insight
Bet-hedging is common in biology - organisms in unpredictable environments produce diverse offspring rather than optimizing all offspring for current conditions. Some seeds germinate immediately; some lie dormant. Some offspring are built for current conditions; some for different ones. This reduces maximum fitness but increases survival probability across different futures.
Key Questions to Ask Yourself
- How confident are you in your predictions about the future?
- What's the cost of being wrong if you concentrate?
- Are the options you're considering truly uncorrelated (actual diversification)?
- Do you have the resources to pursue multiple bets effectively?
- Can you maintain focus within diversification (hedged bets, not scattered attention)?
Common Mistakes
- Diversifying based on fear rather than uncertainty (spreading thin when you should concentrate)
- False diversification (options that are actually correlated)
- Spreading resources so thin that no bet can succeed
- Using diversification as an excuse to avoid hard decisions
- Not recognizing when to convert diversified bets into concentrated ones