The Fewer the Merrier

"Don't put all your eggs in one basket," goes the proverb that we all learned in our school days. When we grew up and became investors, we learned that this was a basic virtue that was needed and was called diversification. Fund investors take this as an injunction that they should invest not just in one or two funds, but in a large number of funds. So they decide that investing in two funds is better than one, three is better than two, four is better than three and so on. Is there an upper limit to this? Is investing in 10 funds better than 9? How about 20? Or 50 or even 100? At some point diversification becomes pointless, and then it becomes counterproductive and eventually it becomes ridiculous. Is there a point of diminishing returns? Most investors would thi