Mark Cuban channels Keynes when he says diversification is for idiots. Keynes thought similarly:
As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special condence. […] One’s knowledge and experience are denitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence. (letter to F. C. Scott, 15 August, 1934)
Keynes’s pre-Markowitzian view is regularly dismissed, but Cuban makes an intriguing point about sitting in cash until you see an opportunity, as opposed to simply being fulling invested all the time. The longer it takes the market to reach prior peaks, the more markets may begin to think a P/E of 12, not 20, is the status quo. It would be a good thing if investors thought less about trying to make money in the abstract market, where they have little control or responsibility. Market timing is improbable, so the key is not to think staying in cash is waiting for some market bottom to jump in, rather to wait until something more unconventional like a chance to invest with some acquaintances in a franchise or something where alpha is more conceivable.
The idea of getting paid to take some ‘abstract risk,’ is becoming more quaint every year.