Diversification in Investing: The Bundle of Arrows

The power of collective strength over isolated vulnerability is a truth echoed across history and culture. One of the most popular allegories is the parable of the father who asks his sons to break a single arrow, which they accomplish with ease. He then asks them to break a bundle of arrows, demonstrating the power of unity and resilience. This story has appeared in various traditions, from the tales of Genghis Khan’s ancestors in Mongolian culture to Aesop’s Fables in Greek antiquity.

This ancient story holds incredible relevance for modern investing. Today, investors are frequently pulled in two opposing directions. On one side, financial culture and social media pushes for broad-based investing—putting capital into a basket of diverse assets. On the other, the idea is promoted that true wealth is built by betting big on a single, highly volatile investment, often favoring assets like cryptocurrencies, NFTs, and non-profitable growth stocks.

While it is true that concentrated investment can lead to massive profits, this approach often carries risks akin to gambling. For every fortunate individual who selects the correct high-conviction investment, there are many others who concentrate their holdings only to face significant losses. This phenomenon was widely demonstrated after the COVID-19 lockdowns, when high-flying, unprofitable growth stocks, heavily promoted online, saw share prices decline by 80% or more as the hype inevitably faded.

The danger of relying on a single financial thesis is that even companies with seemingly impeccable financial health can break, much like the single arrow. From personal experience, I’ve witnessed several companies I held in high regard deteriorate rapidly due to unforeseen macroeconomic or idiosyncratic risks.

For instance, my investment in Delta Air Lines (DAL) saw its future prospects and financials completely flip when the COVID-19 pandemic grounded air travel. Similarly, SSR Mining (SSRM) faced a sharp share price decline when a devastating landslide occurred at its Çöpler mine in Turkey. Another example is Celanese Corporation (CE), whose sturdy balance sheet was suddenly threatened by weak demand in its cyclical sector, leading to an unexpected decline in both share price and financial performance.

The Psychological Shield of the Bundle

Throughout these collapses, the one factor that kept my portfolio grounded and my emotions stable was a high level of diversification across various ETFs and individual stocks. Being overly concentrated in any one of these names could have been financially detrimental, but, more importantly, it could have severely impacted my long-term psychological commitment to investing.

Diversification acts as a psychological shield. Because my portfolio was a bundle, I was able to manage the sudden, violent downturns without panicking. I successfully sold several volatile positions, including SSRM, Intel, and Delta, at a profit. Without the protection of the bundle, the likelihood of panicking and selling out of positions at the absolute bottom would have been much higher.

This strategy allows for calculated risk management. For example, Celanese (CE) remains a position I currently hold, despite its continued decline. I believe the company is poised for a turnaround when demand increases in its cyclical sector. Even in a worst-case scenario where the company fails, the broad diversification provides peace of mind that it will not be a portfolio-shattering event. While one arrow in the bundle might crack, the rest of the bundle remains intact.

Opportunity in Volatility

Recently, Fiserv (FI) provided a textbook example of this principle in action. After recently reporting earnings on 10/29/25, the stock shockingly dropped close to 50%. While Fiserv's balance sheet has weaknesses—namely large long-term debt and high debt issuances made for aggressive share repurchases at high prices—it is a company that generates tremendous free cash flow (FCF).

As a result of my relatively small, diversified position in FI, this massive selloff had only a minor impact on my overall portfolio value. Critically, the market overreaction presented an opportunity. I was able to purchase more shares in a company with strong FCF generation at nearly a 50% discount from its trading price just days before.

This broad diversification strategy provides the flexibility to strategically reallocate capital. I was able to sell a lower-volatility bond fund, such as BLV, to increase my position in the sharply volatile Fiserv. Regardless of my belief in the stock’s potential, my rule of broad diversification ensures that Fiserv will not become an outsized position.

The bundle of arrows is not just a metaphor for protection; it is a strategy for opportunity. By mitigating the downside risk of single-stock failures, diversification ensures that your emotional capacity and financial capital remain available to act decisively when other arrows—even ones you own—crack under pressure.