The concept of diversification is best captured by the phrase:

Question

BlackTom AI · Accepted Answer

Diversification means spreading resources or investments across different assets or opportunities so that a single adverse event does not ruin the whole position; therefore the proverb "don't put all your eggs in one basket" captures it exactly.

1) Relevant knowledge points and concepts
- Risk management: diversification reduces idiosyncratic (asset-specific) risk.
- Portfolio principle: combining uncorrelated assets lowers overall volatility.
- Metaphorical interpretation: an image of eggs in baskets conveys concentration vs. spreading.

2) Step‑by‑step reasoning
- Read each option and map its meaning to diversification.
  a. "It never rains but it pours" — means troubles tend to come together; not about spreading risk.
  b. "Don't put all your eggs in one basket" — literally advises splitting eggs among baskets so dropping one basket won’t break all eggs; directly advises avoiding concentration.
  c. "Make hay while the sun shines" — means take advantage of good conditions, not about risk spreading.
  d. "Don't look a gift horse in the mouth" — means don’t be ungrateful for gifts, unrelated to diversification.
- Evaluate implications: option b prescribes distributing items across containers to avoid total loss, which is the core of diversification.

3) Numerical illustration (intermediate steps)
- Suppose $100 invested in one stock falls 50% → loss = $50.
- If instead you invest $50 in Stock A and $50 in Stock B, and only A falls 50% while B is unchanged:
  - Loss on A = $50 × 50% = $25
  - Loss on B = $0
  - Total loss = $25, which is half the loss compared to full concentration.
- This simple arithmetic shows how splitting reduces potential loss.

4) Why the correct answer is correct
- Option b is a direct metaphor for spreading assets to reduce the chance of total loss; it encapsulates the diversification principle used in finance and risk management.

5) Why other options are incorrect
- a) Describes clustering of bad events, not a risk-reduction strategy.
- c) Advises exploiting favorable timing, not spreading risk.
- d) Advises accepting gifts without criticism, unrelated to allocation.

Conclusion: The best phrase capturing diversification is b. don't put all your eggs in one basket — this matches the provided answer.

The concept of diversification is best captured by the phrase:Single choice

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