It’s the market’s swiss army knife

Diversification is to the investing community what aliens are to the scientific one. Both are highly debated among those in their respective spheres of influence, with smart people making decent points on both sides of the talks.

Among investors, perhaps no one packs a punch quite like Warren Buffett. His goal of buying great companies at great prices is probably the G.O.A.T (greatest of all time) when it comes to strategies.

Just look at his track record. The man’s held shares of Coke since 1988. Those shares made him $672 million in dividend income last year alone.

Buffet’s a connoisseur of great companies and, when they go on sale, he buys in bulk. He has a few favorites, Coke being his fav, and isn’t a huge fan of diversification.

Wide diversification is only required when investors do not understand what they are doing.

His words, not mine.

There are some, though, that think diversification is key to building a resilient portfolio. Barry Ritholtz, the co-founder, chairman, and chief investment officer of Ritholtz Wealth Management said, when done well, it can pretty much guarantee decent returns over time.

The beauty of diversification is it’s about as close as you can get to a free lunch in investing.

To diversify, or not to diversify? That is the question

Because investing isn’t a one-size-fits-all type of thing, there really isn’t a right answer. I’m not a huge fan of diversification just for the sake of diversification as it tends to take your hard-earned investing dollars away from some of your best ideas.

Still, as we’ve seen more than a few individual stocks take major haircuts anywhere in the neighborhood of 60–80% in recent months, placing big bets on individual stocks can be risky. Diversification can, potentially, help smooth out some of those returns and protect against the big dips in individual names.

Get the best of both worlds

Or, you could kinda cheat and do both all at once.

Look for a company that makes money in a lot of different ways. If you find a business that’s well-diversified, obviously, it will add some element of diversification to your portfolio.

Not all diversified companies are created equal, though.

An example of a weird combo would be what AMC did. Like when it — the largest movie theater operator in the world — bought a gold mine in Nevada.

That just … doesn't make sense.

What does, though, is a company expanding its revenue streams within its own ecosystem, making its products more desirable and harder to put down once you do get your hands on them.

A good example is Apple. For years, Apple was pretty much a one-trick pony. The iPhone was its revenue driver, accounting for, well, almost all of it.

As iPhone growth started to stall, the company found ways to monetize the phone well beyond the initial purchase, dipping its toes into the world of services.

Now, you could pretty much replace any number of growth stocks in your portfolio with one like Apple, which makes money the same way, but has a much more diversified and robust business model, which you need to be successful over the long run.

Here are some names you could toss out for Apple

• Spotify (SPOT); Apple offers Apple Music and podcasts.

• Netflix (NFLX); Apple offers Apple TV+, which I must say has some pretty solid original content. “CODA” recently won an Oscar for Best Picture at the Academy Awards.

• Nvidia (NVDA); Apple has started to manufacture its own chips.

• Peloton (PTON); Apple offers Apple Fitness+ as a competitor in the connected-fitness landscape.

• Sonos (SONO); Apple has the Apple HomePod for those of you speaker fans out there.

And the list goes on. Rumors of an Apple Car have been popping up here and there for years and, well, who knows what’s next.

I’m not saying Apple will perform better than any of the companies I mentioned above, but if you own any of them for diversification alone, Apple might just be a better fit for you in this environment. It pays a dividend, aggressively buys back its own stock to make your shares worth more, and has exposure to a lot of different things a lot of different people like … and makes money off of all of them.

Apple has its eggs in a lot of different baskets, but the synergies between the baskets are obvious, with the iPhone as the headquarters.

Disclaimer: I’m a market participant, not an analyst. This is not financial advice.