Why Warren Buffett Thinks Diversification Is for Dummies (And You Should Too)

Dear Reader,

The Rich Dad Company team had a heated discussion last week. Warren Buffett’s classic video lit the match. His insights on cash, risk, and investing? They’re the opposite of what Wall Street preaches. And they’re pure gold.

Let’s break it down.

• Cash Is Not an Investment: Holding cash doesn’t build wealth—it loses value over time.

• Diversification Is a Cop-Out: Owning too many stocks shows you don’t understand business.

• Risk Comes From Ignorance: Real risk isn’t volatility. It’s not knowing what you’re doing.

First, forget the idea that “cash is king.” Buffett says cash is like oxygen—you need some, but too much suffocates your growth. Holding cash for the sake of it? That’s dead money. Invest it in assets that work for you. If you’re hoarding cash, you’re either afraid or ignorant of better opportunities.

Next, let’s talk diversification. Wall Street loves to push the 60/40 rule—60% in stocks, 40% in bonds. Buffett calls it nonsense. He’s right. Diversification is just a fancy way of saying, “I don’t know what I’m doing, so I’ll spread my bets.” Great businesses—those rare gems—don’t need a crowd around them. Buffett’s advice? Own a few wonderful businesses you deeply understand. Not 30. Not 50. Just a handful.

And risk? It’s not what you think. Wall Street says risk is volatility. They even have fancy metrics like beta to prove it. Buffett shuts that down hard. Risk, he says, comes from not knowing what you’re doing. It’s not about the stock price bouncing up and down. It’s about understanding the economics of a business, knowing the people running it, and ensuring you’re paying the right price.

Think about it this way. Would you call a farm risky just because its value dropped in a bad season? Of course not. But Wall Street does the same with stocks every day. They profit from your fear, selling you nonsense like asset allocation and “expert” advice.

Here’s the real game:

1. Find businesses you’d own for 30 years.

2. Ignore market noise.

3. Invest like your future depends on it—because it does.

Wall Street doesn’t want you to know this. Why? Because their money comes from your ignorance. They thrive when you jump from one fund to another, chasing the latest trends. But Buffett and I agree: success isn’t complicated. Find something you understand, invest wisely, and let time do its work.

The best investment you’ll ever make? Yourself. Buffett says it. I say it. Improve your skills, especially communication. Build your knowledge. No one can take that from you.

Forget the noise. Learn to think for yourself. Cash isn’t king—action is.

Kiyosaki Uncensored