Buy Hold Rant
How FOMO and over diversification destroy returns — why owning 50 stocks is a trap
11/4/2025, 8:10:37 PM
Economic Summary
- Many investors accumulate 30–50 stocks driven by FOMO and a desire for diversification, which often results in shallow knowledge of holdings and suboptimal investment decisions with lower expected returns.
- Diversification reduces idiosyncratic risk but also caps upside: adding many positions may moderate volatility but guarantees more mediocre returns and lowers the chance of outsized gains.
- Diversification does not protect against systemic market risk; in a broad market downturn, even widely diversified portfolios will decline, so diversification primarily mitigates single-stock risk rather than market risk.
Bullish
No bullish cases captured.
Bearish
- Diversification guarantees limited returns; holding many stocks reduces chance of outsized gains.
- Owning many names often driven by FOMO, leading to poor understanding of companies.
- Diversification does not eliminate market-wide downside; portfolios still suffer in a market crash.
- Holding 30–50 stocks can produce mediocre returns without commensurate risk reduction.