Elon Musk proves financial advisors wrong

Elon Musk’s personal fortune of $1.3 trillion exposes a flaw in one of investing’s most widely accepted ideas.

The financial advice industry has for decades championed diversification as the answer to almost every investment challenge. Build a broad portfolio, spread risk, own the market and stay patient.

Indeed, it’s sensible advice and, for many investors, entirely appropriate.

Yet diversification has gradually evolved from a risk-management tool into something approaching an ideology.

Musk’s wealth highlights why that distinction matters.

Nobody builds one of the largest fortunes in history through maximum diversification, or reaches the top of the global rich list by owning tiny positions in thousands of companies.

Wealth on Musk’s scale is created through concentration: identifying a small number of transformative opportunities and committing significant capital to them.

Tesla alone provides a case study. Investors who treated the company as a marginal position within a highly diversified portfolio enjoyed some upside. Investors who recognised its potential early and built meaningful exposure experienced something entirely different.

The same principle applies across modern business history. Jeff Bezos concentrated around Amazon, Mark Zuckerberg on Facebook, Jensen Huang on Nvidia, and Larry Ellison focused on Oracle.

As such, we can see that concentration has been responsible for many of the largest fortunes ever created.

Wall Street rarely focuses on this reality because the risks are obvious. Concentration can produce spectacular failures alongside spectacular successes.

For every Musk, there are countless entrepreneurs, executives and investors whose high-conviction bets ended badly.

The observation, however, does not strengthen the case for blanket diversification. It simply demonstrates that concentration without insight is dangerous.

The more interesting question is whether investors have become too comfortable accepting average outcomes.

The rise of passive investing has transformed markets. Low-cost index funds have given millions of people access to wealth creation opportunities that previous generations could only dream about. Yet the success of passive investing has also encouraged the idea that owning everything is somehow superior to making judgments about where future growth is likely to come from.

Many portfolios now contain exposure to hundreds or even thousands of companies. Investors own the disruptors and the disrupted. The leaders and the laggards. Businesses transforming industries and businesses struggling to survive them.

Such portfolios are designed to capture market returns.

Market returns are not the same as exceptional returns.

The distinction is important because many investors claim to seek above-average outcomes while structuring portfolios specifically designed to deliver average ones.

Musk’s success should not be interpreted as an argument against diversification. It should be viewed as a challenge to the industry’s tendency to confuse diversification with strategy.

Diversification is not an investment thesis. It does not identify opportunities. It does not determine where future growth will emerge. It simply reduces the consequences of being wrong.

Investors still need a view. They still need conviction. They still need to decide which technologies, industries, and structural trends are likely to shape the next decade.

AI is an obvious example. Investors who recognised its potential before it became the dominant market narrative benefited disproportionately. Similar opportunities have emerged repeatedly over the last 30 years, from e-commerce and cloud computing to smartphones and cybersecurity.

The investors who generated the strongest returns were rarely those with the broadest portfolios. They were typically those with the strongest convictions about where the world was heading.

This doesn’t mean placing all available capital into a handful of stocks. A binary choice between concentration and diversification misses the point entirely.

The more effective approach is what I call smart diversification…and it begins with conviction.

Investors identify the sectors, technologies and businesses they believe will drive future growth and allocate capital accordingly.

At the same time, they maintain sufficient diversification to ensure that a mistake, an unexpected regulatory shift, or a technological disruption does not permanently impair their financial future.

In other words, portfolios should be concentrated enough for good decisions to matter and diversified enough for bad decisions to be survivable.

This balance is increasingly absent from investment discussions. Much of the industry focuses on avoiding losses. Far less attention is given to capturing outsized gains.

Musk’s wealth is a reminder that creating wealth and preserving wealth are related but distinct objectives. Diversification excels at the latter. Concentration often drives the former.

Investors who understand the difference are likely to build stronger portfolios than those who treat diversification as an end in itself.

The lesson from Elon Musk is not that diversification is wrong, rather that diversification without conviction is unlikely to produce extraordinary results.

Smart diversification offers a better answer: enough concentration to benefit from being right, enough diversification to survive being wrong.By Nigel Green, deVere Group CEO and Founder

Elon Musk’s personal fortune of $1.3 trillion exposes a flaw in one of investing’s most widely accepted ideas.

The financial advice industry has for decades championed diversification as the answer to almost every investment challenge. Build a broad portfolio, spread risk, own the market and stay patient.

Indeed, it’s sensible advice and, for many investors, entirely appropriate.

Yet diversification has gradually evolved from a risk-management tool into something approaching an ideology.

Musk’s wealth highlights why that distinction matters.

Nobody builds one of the largest fortunes in history through maximum diversification, or reaches the top of the global rich list by owning tiny positions in thousands of companies.

Wealth on Musk’s scale is created through concentration: identifying a small number of transformative opportunities and committing significant capital to them.

Tesla alone provides a case study. Investors who treated the company as a marginal position within a highly diversified portfolio enjoyed some upside. Investors who recognised its potential early and built meaningful exposure experienced something entirely different.

The same principle applies across modern business history. Jeff Bezos concentrated around Amazon, Mark Zuckerberg on Facebook, Jensen Huang on Nvidia, and Larry Ellison focused on Oracle.

As such, we can see that concentration has been responsible for many of the largest fortunes ever created.

Wall Street rarely focuses on this reality because the risks are obvious. Concentration can produce spectacular failures alongside spectacular successes.

For every Musk, there are countless entrepreneurs, executives and investors whose high-conviction bets ended badly.

The observation, however, does not strengthen the case for blanket diversification. It simply demonstrates that concentration without insight is dangerous.

The more interesting question is whether investors have become too comfortable accepting average outcomes.

The rise of passive investing has transformed markets. Low-cost index funds have given millions of people access to wealth creation opportunities that previous generations could only dream about. Yet the success of passive investing has also encouraged the idea that owning everything is somehow superior to making judgments about where future growth is likely to come from.

Many portfolios now contain exposure to hundreds or even thousands of companies. Investors own the disruptors and the disrupted. The leaders and the laggards. Businesses transforming industries and businesses struggling to survive them.

Such portfolios are designed to capture market returns.

Market returns are not the same as exceptional returns.

The distinction is important because many investors claim to seek above-average outcomes while structuring portfolios specifically designed to deliver average ones.

Musk’s success should not be interpreted as an argument against diversification. It should be viewed as a challenge to the industry’s tendency to confuse diversification with strategy.

Diversification is not an investment thesis. It does not identify opportunities. It does not determine where future growth will emerge. It simply reduces the consequences of being wrong.

Investors still need a view. They still need conviction. They still need to decide which technologies, industries, and structural trends are likely to shape the next decade.

AI is an obvious example. Investors who recognised its potential before it became the dominant market narrative benefited disproportionately. Similar opportunities have emerged repeatedly over the last 30 years, from e-commerce and cloud computing to smartphones and cybersecurity.

The investors who generated the strongest returns were rarely those with the broadest portfolios. They were typically those with the strongest convictions about where the world was heading.

This doesn’t mean placing all available capital into a handful of stocks. A binary choice between concentration and diversification misses the point entirely.

The more effective approach is what I call smart diversification…and it begins with conviction.

Investors identify the sectors, technologies and businesses they believe will drive future growth and allocate capital accordingly.

At the same time, they maintain sufficient diversification to ensure that a mistake, an unexpected regulatory shift, or a technological disruption does not permanently impair their financial future.

In other words, portfolios should be concentrated enough for good decisions to matter and diversified enough for bad decisions to be survivable.

This balance is increasingly absent from investment discussions. Much of the industry focuses on avoiding losses. Far less attention is given to capturing outsized gains.

Musk’s wealth is a reminder that creating wealth and preserving wealth are related but distinct objectives. Diversification excels at the latter. Concentration often drives the former.

Investors who understand the difference are likely to build stronger portfolios than those who treat diversification as an end in itself.

The lesson from Elon Musk is not that diversification is wrong, rather that diversification without conviction is unlikely to produce extraordinary results.

Smart diversification offers a better answer: enough concentration to benefit from being right, enough diversification to survive being wrong.