DON'T PUT ALL YOUR EGGS IN ONE BASKET, BUT DON'T HAVE TOO MANY BASKETS, EITHER

Diversification is one of the most critical strategies for your portfolio so that if one stock blows up, it won't sink the entire ship. As much as we think we won't make a mistake, we will. Even the masters do and that is why we can't put all our eggs in one basket. There's power in diversification.

However, research suggests that 90% of diversification benefits can be obtained in most markets with a portfolio of just over 20 stocks. The more you diversify beyond that, the less you know about each investment (See Rule #4). Your first and second best ideas are always better than your 100th best idea, so while diversifying is crucial, make your best ideas count!

“We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts”. Warren Buffett