Golden eggs in a intricately woven basket.

The "All Eggs in One Basket" Strategy: When Concentrating Risk Pays Off

Nico Varela in Business & Economy September 2025 • 4 min read.

"Counterintuitive investment insights reveal scenarios where focusing your resources can lead to better outcomes than diversifying."

In the world of investing and strategic decision-making, the conventional wisdom often leans towards diversification. We're told not to put all our eggs in one basket, to spread our resources across multiple ventures to mitigate risk. However, sometimes, bucking this trend and concentrating our efforts can yield surprisingly positive results. This approach isn't about reckless gambling; it's about understanding scenarios where focusing risk can actually be the optimal strategy.

Modern portfolio theory typically advocates for diversifying investments to reduce the impact of any single asset's poor performance. The idea is that by spreading your investments across different asset classes with low or negative correlations, you can create a smoother, more predictable return stream. But what happens when the potential reward from a unified, highly focused effort outweighs the gains from several diluted attempts? What if the correlation between different ventures makes concentrating resources a strategically sound move?

This article delves into the intriguing concept of when it's beneficial to concentrate risk rather than diversify. We will explore real-world examples and a game-theoretic approach to understand the conditions under which focusing your resources—putting all your eggs in one basket—can be the most effective path to success. This isn't just about finance; it's a broader lesson applicable to various fields, from military tactics to corporate mergers.

When Concentrating Risk Makes Sense: Unveiling the Scenarios

Golden eggs in a intricately woven basket.

Concentrating risk, or focusing resources, can be a strategic advantage in several situations. These scenarios often involve a high degree of interdependence or a potential for synergistic gains that outweigh the benefits of spreading risk. Let's examine some key examples:

Consider a startup with limited resources. Spreading those resources thinly across multiple projects might lead to mediocrity in all areas. However, focusing intensely on a single, high-potential product or market could lead to a breakthrough and significant market share. This "go big or go home" approach acknowledges the inherent risks but aims for disproportionate rewards.

Stochastic Production: Imagine a manufacturing company reliant on multiple suppliers, each with a chance of failure. Instead of diversifying suppliers, focusing on building strong, reliable relationships with a select few might ensure a more consistent supply chain.
Military Tactics: In military strategy, concentrating forces at a critical point can overwhelm the enemy, even if it leaves other areas vulnerable. This calculated risk, based on intelligence and strategic assessment, can lead to decisive victories.
Corporate Mergers: When two companies merge, consolidating operations and resources can create economies of scale and eliminate redundancies. While mergers always involve risk, the potential for increased efficiency and market dominance can justify concentrating efforts.

The key to understanding when concentration is optimal lies in analyzing the correlations and potential synergies between different ventures. If the success of one venture significantly boosts the likelihood of success for others, concentrating resources can create a positive feedback loop, amplifying overall returns. However, this strategy requires careful assessment and a willingness to accept the potential for significant losses if the primary venture fails.

The Art of Strategic Concentration

Deciding when to concentrate risk is an art and a science. It requires a deep understanding of the specific context, the potential correlations between different ventures, and a willingness to accept the inherent uncertainties. While diversification remains a cornerstone of sound financial planning, recognizing the situations where focusing your resources can lead to outsized gains is a valuable skill for any investor or strategic decision-maker. By carefully weighing the potential risks and rewards, you can determine when putting all your eggs in one basket is the smartest move.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2403.15957,

Title: Putting All Eggs In One Basket: Some Insights From A Correlation Inequality

Subject: math.pr econ.th math.oc

Authors: Pradeep Dubey, Siddhartha Sahi, Guanyang Wang

Published: 23-03-2024

Everything You Need To Know

What is the core concept of the 'All Eggs in One Basket' strategy, and how does it differ from traditional investment advice?

The core concept revolves around concentrating resources instead of diversifying them, which directly contrasts with the conventional wisdom of spreading investments across multiple ventures to mitigate risk. This approach suggests that focusing efforts on a single, high-potential opportunity can yield better results than diluting resources across several projects. The emphasis is on understanding scenarios where a concentrated approach is strategically advantageous, rather than simply avoiding risk through diversification.

In what specific scenarios does concentrating risk, or focusing resources, provide a strategic advantage?

Concentrating risk becomes advantageous in scenarios involving a high degree of interdependence or the potential for synergistic gains. For instance, a startup focusing on a single, high-potential product can aim for a breakthrough. Similarly, in Stochastic Production, focusing on a few reliable suppliers can ensure a more consistent supply chain. In military tactics, concentrating forces at a critical point can lead to decisive victories. Corporate Mergers can benefit from consolidating operations. These examples illustrate situations where the benefits of focus outweigh the risks.

How does the concept of Stochastic Production support the 'All Eggs in One Basket' strategy?

Stochastic Production demonstrates how concentrating risk can be beneficial by focusing on building strong, reliable relationships with a select few suppliers, ensuring a consistent supply chain. Instead of spreading resources across multiple suppliers, each with their failure risk, this approach prioritizes reliability and minimizes the risk of disruption. This is a strategic choice based on understanding and leveraging potential synergies within the supply chain.

What is the role of correlations and synergies in determining when to concentrate risk?

Correlations and synergies are crucial in deciding when to concentrate risk. When the success of one venture significantly boosts the likelihood of success for others, concentrating resources can create a positive feedback loop, amplifying overall returns. However, if ventures are negatively correlated or have no synergy, diversification might be a more sensible choice. Assessing these factors is the essence of deciding between concentrating or diversifying resources, underlining the necessity of in-depth understanding of the specific context.

What key factors should one consider before deciding to implement the 'All Eggs in One Basket' strategy?

Implementing the 'All Eggs in One Basket' strategy requires careful assessment. It involves understanding the specific context, the potential correlations between different ventures, and a willingness to accept inherent uncertainties and significant losses if the primary venture fails. While diversification is a cornerstone of sound financial planning, recognizing situations where focusing resources can lead to outsized gains is a valuable skill. Weighing the potential risks and rewards carefully is crucial to determine when concentration is the smartest move.