"However, the caveat to the frequency of diversification's use is the limitation of the extent thereof. Inasmuch as there is quite obviously the phenomenon of too little diversification, over diversification or 'diworsification' simply regresses the investor's returns to those of the market or benchmark.

"Effectively, considerable effort (and, indeed, expense) is poured into a process that yields no obvious benefit at all ? a huge portfolio of investments is held and managed with little prospect of earning a return that is better than average. Over diversification may also introduce increased trading costs as large portfolios are rebalanced from time to time, and such costs simply erode wealth unnecessarily.

"Investors should seek to capture the benefits of an astute investment selection process without forfeiting all such potential gains by diversifying them all away," warns West.

More conviction = less diversification

Finally, the role of conviction comes to the fore. "Essentially, the more convinced you are of the certainty of an expected return, the less you need to diversify.

"This is not a licence to allow an enthusiastic sales pitch to determine the constitution of your investment portfolio ? the adage 'if it looks too good to be true, it probably is' is a universal truth that should be heeded throughout. But it is an investment truth that a longer investment horizon or holding period actually increases certainty and hence conviction.

"Risky speculation involves a short holding period and an uncertain result; investment necessitates a long holding period and a less risky, more probable result.

"Recall that diversification reduces the risk of being wrong; ergo, the more convinced you are that you are right (or the longer your holding period of a robust investment), the less your need to remove the risk of an untoward outcome."

According to West it is this last point that is often misunderstood by investors and it is the point that is often capitalised upon by the unscrupulous investment scheme provocateur. "Investors should keep in mind that the only guarantees are death and taxes ? anything else carrying that label should be regarded with circumspection.

"Time may heal all wounds but it certainly proves the merit of robust and successful investment philosophies and processes. Rather than falling prey to apparently Twainian* schemes offering riches that belie their risks, investors should put their faith in what has been tried, tested and proven," concludes West.

*"Put all your eggs in one basket ? and watch that basket!" (Mark Twain, The Tragedy of Pudd'nhead Wilson)