Lots of reasons can explain that individual investors fail to diversify. Insufficient money, time, and knowledge may be among the pool. Buying a stock mutual that takes the market index as the benchmark is the most simple and tradictional investment that individual investors can diversify their risk. The problem of investigating individual investors' investment is that none of the data represents the whole picture of an investor. He or she may be diversified in some portion of his/her investment and undiversified in the other portion.

Although one may be able to earn a higher return with a given risk by diversifying, it all comes down to what was stated in the blog. Investors, and people in general, usually interact with companies they are most comfortable and familiar with. In many cases, this is they company they work for. Familiarity seems to be what's keeping people's investments in one place.

In my opinion, most individual investors simply do not wish to spend the time to find information about several different companies. In addition, it can be hard to know where to look for a new company to add to your portfolio. I think this is one reason people invest so heavily in a few stocks and in ones that they know and have contact with. It also explains why individual investors invest in stocks that are in the news as one of your other pieces states.

This is a very intresting point. I myslef know very little about portfolio's, but from what I have read it seems to me that concentration is better than diversification when it comes to knowledege of stocks and the market. I myslef would probably be an advocate of concentration because investing in mulitple stocks I know nothing about seems like a very unwsise decision.

That's a good point. People generally want to stick with what they're familiar with, especially if they're worried about the possible risk involved with investing. And it'd seem rare for most investors to do a lengthy amount of research on several different portfolio options, especially if probability of risk is an issue. Granted, diversification can yield higher returns, I'd be somewhat leary about investing a good portion of my money in companies I'm not familiar with, even if I was a very experienced investor.

I think it really comes down to lack on time and knowledge. the amount of time required to research several companies could leave a potential investor confused and overwhelmed. It is much easier to do you homework on one company. Particularly if that company is your employer.

Theoretically, diversification of investment enables investors to gain higher expected returns at the same level of risks. But it'll be hard to apply the idea to practice. How do investors know the exact number of companies they should invest in a specific case? Even if there is a number and names of the companies, the investors cannot be guaranteed the expected return.So investors tend to deal with some familiar investing environment.

I am sure that it would take a lot of work to do research on a few different companies instead of just one. So although it makes sense to not throw all of your money into one company's stock, it seems like it would be the easier choice.

Although theoretically diversification is the most profitable strategy for investing, does this still require a certain amount of research into the risk of the company, and if so how does this solve the problem of those individuals with a lack of time, money, knowledge, etc?

I agree Keynes' opinion. Most people don't have professional knowledge and skills about investment, and to get those things, they should invest another money, time, and efforts. Even though they have much knowledge and skills about investment, those might be very small portion of investment. Thus, most individual investors couldn't get much profits from investment.

I also think that people mostly have concentrated portfolios because they lack the time or energy to research a wide variety of firms. However, I also think a concentrated profile can be successful, as long as the investor stays well informed about his/her investments and continues to compare their growth against market trends and other similar firms.

I think it is also true that many people buy 10-20 stocks but don't realize that they are all moving in tandem and that they actually have very little diversification. There is a website (http://www.assetcorrelation.com) which allows you to check how diversified your portfolio is by typing in the various ticker symbols. Hint: You're not nearly as diversified as you thought!

I think people fail to diversify their portfolio because they find an investment that has given them a good return and they continue to rely on that outcome in the future. It's very risky and not the smartest decision to make when investing your hard earned money. Some investors aren't educated and make these mistakes.

If you are going to be serious about investing, I believe you should definitely diversify your portfolio instead of concentrate on one investment and spend the extra time to do the homework in learning about companies and their financial statements. If you do this, you can have the best of both worlds and have an even better return rate then if you were to a) really get to know one company and invest or b) diversify with multiple companies and not know much about them.

Concentration and diversification of the portfolio is always a debate between investors. However, people tend to believe that diversifying the portfolio can help them to gain the best benefits. I admitted that the sentence "...that I preferred one investment about which I had sufficient information to form a judgment to ten securities about which I know little or nothing." Is quite reasonable to me, I still think that diversification can help investors benefits.
In fact, diversification in our portfolio can help us to diversify our risk. If we can invest in companies with different industry, we can reduce our lost during the bad performance of some particular industry. For example, if I buy Citi Bank in my portfolio and Walmart as well, I would not lose all of my money during the bad performance of the banking industry recently. I think diversification in portfolio can really help investors.