One of the first things that everyone will tell you when you get into investing or trading is to make sure you diversify your portfolio to spread and minimise your risk.

I can’t argue with that.  It does indeed spread and minimise your risk, but what I have found it also does is minimise your returns; especially when you are just starting out and trying to build your portfolio into something sizeable.

My first year of investing (after a few years of paper trading) was a very successful year in terms of performance; my return for that year was 30.84%.  Sounds awesome right?  I had my portfolio spread out over 12-14 stocks and ETFs at the time but because my portfolio was small, the actual dollar gains were really pitiful.  It’s one of the reasons why I started looking at cryptocurrency.

I did an end of the year review of my strategy and found that, had I just put everything down on Tesla instead of diversifying into blue chip stocks which move at a glacial pace,  my returns would have been almost 3 times higher.

Hindsight, of course is 20/20, but dumping everything on Tesla would only have been great until the end of January 2021 when the Tesla bubble burst. Over the span of February and March it lost 40% of its value.  Because of that, some of the position I built in Tesla is still in the red even now in Sept 2021.

So what is my current portfolio-building plan?  Because I saw that my actual dollar gains from 14 stocks was so small, I decided to:

  1. Look for investments with higher gains (which lead me to crypto)
  2. Un-diversify my portfolio by about half.

In January, I sold out of all of my stocks except for Tesla and two Ark ETFs and put all that capital into three cryptocurrencies: Bitcoin, Ethereum, and Cardano. I have also, since then, opened up a smaller position in Ripple.

I’ve gone from 14 open long positions to 7.  And almost all of them are very highly performing.  The only positions I currently have in the red are the two ETFs and I am holding them as a 3-5 year play.  Tesla is also a 3-5 year play, but the cryptocurrencies are a one year play, based on where we are currently in the 4 year Bitcoin cycle.

If I hit all of my targets for the end of the year, my portfolio will 7x.  Right now I think it will probably be more like 4-5x but I’m not changing my targets just yet.

What I am saying here, is that diversification seems to me to be a maintenance strategy for a slow moving portfolio that has already been mostly built.  Or it’s a multi-decade strategy for building and maintaining a portfolio for someone just starting out in their 20s.

Unfortunately, I am in neither of those positions being in my 50s now.  My position requires some bigger, perhaps riskier, moves.  (Risk can be managed though)

That said, I’m not sitting back waiting for my golden payday.  I watch the crypto markets very closely and I am always trying to learn more.  I am learning about yields and staking, I am honing (and finally using) the trading skills I learned many years ago, and I am constantly trying to improve my technical analysis.

I spent quite some time last year researching the idea of retiring on income from dividends.  I still think it’s a great idea but it requires a substantially sized portfolio to make it work.  To have an income of $60,000/year with an average dividend return of 4%, you would need a portfolio of $1.5 million.  I’m going to need to do some serious investing AND trading to make that happen.  I think crypto is the key not only to achieving a portfolio of that size, but of perhaps the key to a greater life-changing wealth that I will be able to pass onto my kids.

Right now, diversification is not part of my strategy.

Here’s an article about diversification which brings up some other important points which I haven’t talked about:  Yes, Diversification Can Hurt Your Portfolio

I’ll leave you with a couple of very thought-provoking quotes:

“Diversification is a protection against ignorance, it makes very little sense for those who know what they’re doing.”  -Warren Buffet

“Behold, the fool saith, “Put not all thine eggs in the one basket” – which is but a matter of saying, “Scatter your money and your attention”; but the wise man saith, “Put all your eggs in the one basket and – WATCH THAT BASKET .”      – Mark Twain, Pudd’nhead Wilson