Diversification

“Put all your eggs in one basket, and watch that basket.” Mark Twain

“[Diversification is] the only free lunch in this whole gosh-darned business.” Jim Cramer

Mathematics proves that for a set of risky projects, a combination of projects will offer a greater return for the same risk than a single project. Financial theory also suggest that after adding 20 stocks to a portfolio the benefit of diversification tapers off significantly, I haven’t seen the same analysis performed for projects (the data would be much harder to obtain), but conceptually it is also true that there is a number of projects beyond which diversification ceases to add value.

Is your portfolio taking advantage of this free lunch? Are you undertaking a sufficiently large, sufficiently diverse set of projects?

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