Diversification

Holding several imperfectly correlated positions so that no single outcome determines the result.

The mathematics is favourable and finite. Most of the reduction in portfolio volatility from adding names is achieved by around twenty to thirty holdings, and beyond that each addition removes very little risk while diluting the effect of the best ideas.

Diversification that is only nominal offers nothing. Twenty Indian non-bank lenders is one position held twenty times, and it will behave that way in the year that matters.

Count exposures, not names.

Twenty to thirty, and the arithmetic is spent.

Concentration is a decision about conviction and it should be made explicitly rather than by drift. A portfolio that started at twenty equal positions and is now 40% in one name because that name appreciated has become concentrated without anyone deciding to, and the sizing rule exists to make that a choice rather than an accident.