Noah was, by all reports, a pretty good shipwright. And, for six weeks, not a bad zookeeper either. He must have been a decent logistician, to keep both man and beast fed, and as for convincing all of them – predator and prey – to hop on the same boat, well he makes Mick Dundee look like an amateur when it comes to animal whispering.
We don't know if Noah was an investor – though he did manage to prepare pretty well for, in his case, a not-so-metaphorical rainy day – but his example works much better for preserving the world's wildlife than it does for building your nest egg. To Noah, at least, the chicken did come first.
![Two of everything is not a wise investment strategy. Illustration: Andrew Dyson](/web/20160921222912im_/http://www.theage.com.au/content/dam/images/g/r/j/8/8/z/image.related.articleLeadwide.620x349.grj866.png/1474364056090.jpg)
You see, Noah, divinely inspired, decided to collect two of everything (well, except the unicorns, to our eternal loss). Two pigeons, two lions, two hyena, two elephants, and so on. His goal wasn't to find the best animals, nor to improve anything – just to amass a collection.
And that's where Noah differs – or at least should differ – from the modern-day investor.
Common sense ain't that common
One of the biggest challenges for investors is engaging our rational brains and banishing our emotions. A subset of that process is really analysing what otherwise appears to be commonsense – but stands to harm our investments.
You've likely heard, seen or read a financial expert talking about "the resources part of your portfolio", or that "of course you need exposure to utilities". It sounds logical, so many investors just take it for granted. "I need to add some healthcare stocks to my portfolio" is a line I've heard regularly, along with "I'm not sure what oil shares to buy".
It just sounds, well, smart, right? After all, you're told (including by me) that you should diversify your portfolio. And having a little bit of everything – especially when the talking heads say you should – sounds like a logical approach.
But it's not.
Don't be like Noah
"What would Noah do?" is a great way to build a zoo, but a terrible way to invest. Because diversification means exposing your portfolio to a range of opportunities and avoiding taking too much concentrated risk. Owning 10 miners isn't diversification – you're taking the same risk, 10 times. Ditto 10 retailers or 10 utility businesses.
Done to an extreme, though, over-diversification is a ticket to mediocrity, or worse. Instead, sensible diversification is starting with trying to find the most attractive investments you can, and then making sure your portfolio is not overly exposed to a single risk or related risks.
Owning airline stocks just because "you should have exposure to airlines" would have been a dumb idea. Similarly, the resources rout over the past five years would have cost you a small fortune if you'd listened to those who said "you need gold, and some iron ore, and some rare earths and exposure to copper…".
Foolish takeaway
Diversification truly is, as they say, the only free lunch in investing. But diversification isn't the same as two of everything. If you want total diversification, there's nothing wrong with just buying an index fund and going fishing or shopping.
But if you're going to pick your own investments, make sure you are buying them for the right reasons, not just for those that seem superficially sensible, but don't pass the test, upon further inspection.
And if you're going to forget anything, make it the sloths or the snakes – not the unicorns!
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Scott Phillips is the Motley Fool's director of research. You can follow Scott on Twitter @TMFScottP. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).