Financial institutions diversify into their level of incompetence

From FT.com:

Financial institutions diversify into their level of incompetence.

Then they blow up?

...It is therefore particularly easy for those who work in financial institutions to make the mistake of believing that their success is the result of exceptional skill rather than good fortune. What more natural to believe than that extraordinary talent will find pots of gold under other rainbows?

When you're considering diversifying your portfolio into stocks keep in mind on Tuesday, trading in 4 stocks represented 37% of the trading volume. Two of them are essentially insolvent companies too. Here's the scoop at Seeking Alpha.

So, could the big institutional traders, even mutual funds, be diversifying into their level of incompetence with your money?

What does it mean when 37% of the trading volume was in 4 stocks? That "big money" is thinking & investing rationally, or that Wall Street is basically gambling?

Warren Buffett's early strategy of investing was, as you probably know, buy & hold only companies he understood. Most people don't realize he believed a large portion of "his diversification" came from completely understanding each company he invested in, vs. throwing money at a lot of different companies without the appropriate due diligence.

The point? Be careful in your risk vs. reward assessment by not diversifying into your level of incompetency.

More about the Peter Principle.