Buy Hold Rant
The FOMO Trap: How Over-Diversification Limits Your Returns
10/30/2025, 7:00:10 PM
Economic Summary
- FOMO drives many retail investors to accumulate large portfolios (20–50 names) they can't adequately research or monitor, raising the likelihood of suboptimal decisions and muted returns.
- Diversification reduces single-stock risk but guarantees more mediocre returns by capping upside; it also does not fully protect portfolios during broad market sell-offs.
- Concentration increases both risk and reward: fewer high-conviction positions raise volatility but allow a single big winner (e.g., a 10X) to substantially boost overall portfolio performance.
- Effective investing requires conviction in both individual positions and an overall strategy, implying investors should balance position size, research capacity, and risk tolerance.
Bullish
- Concentrated portfolios can produce outsized returns if a holding 10Xs.
- Having conviction in positions and a clear strategy improves investment outcomes.
Bearish
- FOMO causes investors to hold 20–50 stocks they don't understand, leading to mediocre returns.
- Broad diversification guarantees limited upside and reduces chances of outsized portfolio gains.
- Holding many positions doesn't protect against systemic market downturns or eliminate market risk.