The old adage that says `do not put all our eggs in one basket ‘. But Mark Twain also had a famous quote that is `Put all your eggs in one basket and WATCH THAT` basketball. Although the first maxim is more popular, but in fact both could be the basis of risk management strategies. Only, of course, its implementation depends on the situation.
Dilemma haunts every person who has to decide between two choices. For example in the case of investment decisions: If you invest in one option, if you choose the right then you will win big. However, if false, then potentially lose all your money. Meanwhile, if you do diversify, you can reduce risk, but your return is also so limited.
But risk management is not fixated on just investment, but more broadly as a business (corporation). For example, in conducting R & D, you can use and risked all existing resources into one project. This project could be successful because they use resources optimally, but if it fails, it means that all resources are wasted. Or any other options you can pursue a variety of projects, with the hope one of them will succeed, only if you put too few resources are also at risk.
So which one is best, put your eggs in one basket and watch the basketball or diversification?
When I first started in business, an entrepreneur usually put all your capital into a basketball, and basketball is continuously monitored. `Put your eggs in one basket and watch the basketball.` Then, over time and experience more and more, just be diversified. If you have to diversify from the beginning, but you’ve got a lot of resources, then become even less focused.
If you put all the capital in just one basket, then when it fails, then fail again, then you must gain experience and many valuable lessons about business. You can learn to make the focus optimally, so that when then you already understand the ins and outs of the business, then you’ve got a great chance to succeed.
If capital is limited, usually single basketball more so choice. If capital is large, the couple chose to diversify, and a new focus over time. Each has its own risks.
Then when you have high confidence in some way, then the approach of singles is the best basketball. For example in terms of investment, if in case you go into a recession and energy sectors alone, then you must have obtained a gain that many times today. Different if you are diversified into several sectors, would return that you earn will not be optimal. So, this basketball match singles implemented in situations where we believe the results, low uncertainty, we have a high ability to monitor the basketball, and basketball that we choose is far more interesting than others.
In the meantime, choose a lot of basketball can only reduce the risk if the basketball is independent of each other, or does not correlate positively. Many basketball is also appropriate if the resources are used much, and you have the ability to diversify.
In essence, when you want to put in one basket, then watch the basketball “ continually, so you’ll have more experience associated with it. In the meantime, if you want to diversify, you also must be ready with a large capital, and return that may not be too high.
What a great resource!