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What is Diworsification?

Malcolm Tatum
By
Updated May 16, 2024
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Diworsification is an investment strategy that is sometimes described as being diversification run amok. Rather than holding a significant number of shares of a given stock, the investor will choose to acquire a few shares of stock in a wide range of companies that are within the same classification. While greatly reducing the degree of risk to the investor, diworsification also tends to guarantee a lower return on the investment.

It is important to note that many brokers and financial analysts will encourage investors to diversify the financial portfolio. However, this approach usually takes the form of encouraging the inclusion of different classes or categories of investments. With this type of diverse activity, the idea is to balance out the assets in a manner that maximizes the changes for earning a healthy return, while still minimizing the degree of risk to the overall value of the portfolio.

With diworsification, this same basic principle is applied within a class of stocks. Thus, instead of owning ten thousand shares of one company, the investor may choose to own a hundred shares in a hundred different companies. To be sure, this does reduce the amount of risk associated with the investment activity. Should an investment in ten thousand shares in one company begin to nosedive, the impact would be quite significant. By the same token, if the value of a hundred share investment begins to sour, the negative impact on the overall value of the portfolio is minimized.

Financial experts disagree on whether or not diworsification is in the best interests of the investor. Purchasing smaller lots of stocks does effectively preclude the investor from being able to participate in stock deals where larger lots must be purchased. From this perspective, the investor is not likely to ever see a dramatic return on any one investment. At the same time, the use of diworsification can be an ideal fit for a conservative investor who is very happy with small but incremental growth.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
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Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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