Are all your eggs in the one basket?

zimbabwe

“Don’t put all your eggs in one basket”
Anon

I love travelling. Travelling allows me to experience unique cultures, see beautiful and interesting sights and most importantly meet interesting people. It’s amazing what you can learn from listening to other people’s experiences.

On a recent trip to Zimbabwe I was fortunate to be sitting on an aeroplane next to a local businessman who was returning home from South Africa. In conversation he gave me his family’s life story. He had several businesses, some urban property assets and was managing to survive despite the severe economic circumstances. His family also used to have several farms, employing hundreds of people. With the encouragement of the government, these farms were ‘taken over’ by so called ‘war veterans’ in the early 2000s with no compensation. In other words, his farms were stolen and hundreds lost their jobs.

Apart from obvious injustice, his position emphasised an important strategy for business owners. I had initially seen this strategy used by a former employer.

The strategy was “don’t put all your eggs in one basket”

Unlike many farmers who had lost their farms in the ‘farm invasions’ the Zimbabwean businessman had survived because he had diversified his businesses, thereby protecting his wealth. Likewise my former employer had carefully separated his business into various categories – operating business, fixed assets, property investments and stock exchange investments. If the operating business failed, then the rest of his wealth was not threatened.

The lessons learnt from my former employer were implemented in a subsequent business. This could not have been done without a very disciplined approach as at times our business struggled. Too often I have seen business owners draw out of their business for private use such as expensive cars, children’s school fees and overseas holidays and then get into trouble with the tax office and creditors when the business struggles financially.

Have you got ‘all your eggs in the one basket’?

If you have, perhaps you need to reassess your situation……

3 thoughts on “Are all your eggs in the one basket?

  1. This is always an interesting one David. I think you have to start with knowing exactly what business you are in and why/how you generate returns. Specialists can charge premiums for their services as can genuine experts in a single market etc. You also can’t spread yourself too thinly and try to be expert in all things. An alternative argument might be “put all your eggs in one basket but make sure you are always guarding the basket”?? Not an easy one….

    • Tim, whilst I agree with what you are saying regarding a business the underlying theme in the post is to understand that diversifying where your wealth is stored to protect your wealth. Where possible don’t have your wealth in a single asset class – diversification and try not to cross link them.

      • hmmm, could take the opposite view David (you know I will!!).
        If I am an equities expert I should specialise in those, furthermore if a mining specialist should specialise in mining shares. If through your expertise you think prospects are good you will buy and if not you will sell/short them. If you really knew what you were doing you wouldn’t allocate funds to property, bonds etc….
        Warren Buffett is an expert value investor and has made the vast majority of his wealth form five or so investments….
        BUT let’s leave it at that as I’m sure we both understand what the other is saying!

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