A self-possessed adult woman in a clean, high-end editorial setting for Diversification.

12 / 25 · Diversification

She does not need every holding to be right. She needs to know what she can own in size.

Diversification can limit the cost of a single blind spot. It is not a substitute for understanding, valuation or a universal instruction to own more names.

The lesson

One stock can fall 50%. In a portfolio of twenty-five equal holdings, that is 2%.

Put €10,000 into one holding and a 50% fall leaves €5,000. Divide it equally across twenty-five holdings and let one fall 50% while the rest do nothing: the portfolio loses €200, or 2%.

That is arithmetic, not an instruction to own exactly twenty-five positions. A concentrated position can be rational when the investor can assess the business, value, downside and position weight. Without that edge, broad low-cost ownership is often the more honest default.

Real portfolios have unequal weights, correlations and market movements. The useful question is not simply how many names you own, but how much capital is exposed to what you do not know.

50%ONE-HOLDING FALL

4%ONE OF 25 HOLDINGS

2%PORTFOLIO LOSS

Make concentration visible

Change the number of equal holdings.

A simple equal-weight thought experiment. Use it to see the arithmetic, not to select a holding count.

See the curve

One line matters most
when you cannot value it.

Portfolio value before and after one holding falls 50%.

One holding25 equal holdings

One line matters most when you cannot value it.
SCENARIO	One holding	25 equal holdings
Before	10000	10000
One holding falls	5000	9800

Portfolio value

Equal holdings

One-holding fall

Portfolio loss in this model

Value after one falls

Value with one holding

Continue with any AI assistant

Audit concentration risk

Help me understand concentration risk in a portfolio. Ask for the largest holdings, countries, sectors, currencies and asset types. Explain where equal-weight thought experiments differ from actual index weights, and distinguish broad ownership from informed concentration without recommending securities or promising returns.

Assumptions

Holdings are equal-weighted and only one changes value.
The model excludes correlation, fees, tax, rebalancing and market-wide moves.
Diversification can reduce concentration risk but cannot prevent losses or replace understanding.