The Eggs & Baskets Dilemma

Why Mark Twain Was On to Something

We’ve all heard it a thousand times: “Don’t put all your eggs in one basket.” It’s one of those proverbs so ingrained in the financial world that people quote it as gospel without ever asking whether it’s actually good advice.

The phrase traces back to Miguel de Cervantes’ Don Quixote (1615). In Thomas Shelton’s English translation:

“It is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.”

The image is simple: eggs = your money, basket = the stock, bond, or shiny product you’ve chosen. Drop the basket, and…oops, omelet. The risk is obvious - concentration risk.

But here’s the twist: while Cervantes warned against one basket, Mark Twain told us to flip the script. In Pudd’nhead Wilson (1894), he wrote:

“Put all your eggs in one basket and watch that basket!”

Twain wasn’t being reckless. He was pointing out something that modern investors still get wrong: diversifying without intention can be just as dangerous as concentrating too much.

Photo by Girl with red hat on Unsplash

🧐 The Diversification Dilemma

When people hear “diversify,” they often think more is better. But is owning 400 stocks through five different mutual funds really safer?

Here’s the uncomfortable reality:

• Over-diversification kills returns. A fund stuffed with hundreds of stocks ends up acting like an index, only with higher fees.

• Phantom diversification is everywhere. Check your ETFs or mutual funds’ top 10 holdings. Odds are, you’ll find Apple, Amazon, Microsoft, and Tesla across several of them. That’s not diversification - it’s just overlapping risk.

• Self-inflicted concentration happens too. (Especially when there is no suitable framework.) If you own those big-name stocks directly and inside your funds, you’re doubling down without meaning to.

On the flip side, hedge funds often swing the other way: concentrated bets on AI, energy, or emerging markets. Sometimes brilliant, sometimes disastrous. Either way, not practical for most individual investors.

✨ A Better Way: Drivers and Deflectors

Instead of playing the eggs-and-baskets numbers game, let’s redefine the terms:

• Eggs = your investable money.

• Basket = your total portfolio, across all accounts (brokerage, IRA, 401k, Roth).

With this view, diversification isn’t about how many baskets you carry. It’s about the design of the total basket (including cash sitting in these and other accounts).

That’s where the Drivers & Deflectors approach comes in:

• Drivers are the core holdings that move your portfolio toward its long-term goals (stocks, bonds, commodities - depending on your strategy).

• Deflectors are the supporting cast, assets that zig when your drivers zag, cushioning the impact when markets lurch sideways or down.

For example, if your goal is “growth” you might design your “basket” to hold mostly growth-like securities, such as Technology. These are your “drivers”. Your “deflectors” might include holdings that counter-balance Technology, such as Healthcare - they tend to do less well when “growth stocks” are hot, and better when growth stocks aren’t doing as well.

Instead of “eggs scattered everywhere,” you build one well-designed basket, place your eggs intentionally, and like Twain said: watch it closely.

🔑 Why This Matters

Most investors don’t have a “portfolio” - they have pockets of investments. A 401k here, an IRA (or ISA in the UK) there, maybe two or three different brokerage accounts - a haphazard collection acquired over time.

I certainly did…way back when - it was not a pretty sight.

Each account is managed separately, sometimes even in different styles. The result? Hidden overlap, hidden risks, and a messy accumulation of baskets no one is really watching.

When you zoom out and see your entire portfolio as one basket, you can finally manage risk and growth together. That’s when diversification stops being a buzzword and starts becoming a strategy.

👉 Closing Thought

So yes, Cervantes was right to warn us, but Twain was right to laugh at us. The eggs-and-baskets cliché is only dangerous if you take it too literally.

Your money doesn’t need more baskets. It needs one basket built with purpose. A basket with drivers that take you forward, and deflectors that keep you upright when the road gets bumpy.

Forget carrying baskets everywhere. The real skill is curating one that’s worth guarding. That’s a real strategy.

🚀 Next up:

Sunday - Not All Fear Is Created Equal

Thursday - How to Build Globally Diversified Portfolio.

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