CNBC's Jim Cramer on Monday stressed his belief that diversification is key to a successful portfolio.
Cramer looked at the strategies of ARK's Cathie Wood and BlackRock's Larry Fink to explain why he thinks diversification is usually the best strategy for long-term gains.
"What we don't want is your nest egg to be concentrated in just a few stocks that might be very wrong for the moment, causing you to give up on this entire wonderful asset class," Cramer said. "And that is my fear. That is my biggest fear. Blackrock's diversified style is the antidote to that fear."
Cramer said Wood's primary investment style is to get a few stocks she feels have the highest potential. According to Cramer, she's managed to use this strategy to profit from some great runs in the past — like her early call on Tesla — but has seen losses in the past several years. Her holdings in a cluster of Nasdaq stocks, including Coinbase and Zoom, haven't fared well. ARK, Cramer said, used to have $28 billion in assets, but now has about $9 billion.
"That's the danger of running an undiversified portfolio: You have to be right every time, or else your investors, they get obliterated," Cramer said. "In reality, nobody's that good to maintain this method over the long term, and they shouldn't tout themselves for doing so."
Fink, however, prioritizes diversification, Cramer said, adding that BlackRock is the world's largest asset manager, with $9.4 trillion in holdings. Cramer said Fink's core strategy is to make portfolio decisions based on a holistic approach to the market, investing in different sectors and taking into account the many nuanced factors that influence inflation, from supply chain to geopolitics to the transition to a lower carbon economy.
Cramer emphasized that neither Wood nor Fink will always make the right calls, but said investors can maximize their chances of long-term success by sticking with a diversified strategy.
"Fink knows how to manage this risky environment. As he lays it out, his clients are 'focused on outcomes, and this manifests in a portfolio of blending active index, private markets and cash,'" Cramer said. "That's called a strategy to keep you in the best assets over time, not a tactic to either hit it out of the park or strike out."
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