When used thank that the phrase “never have all the eggs in one basket” was boring. That was until I observed what could happen to an enterprise if they didn’t diversify.  And as you will see the rule isn’t only for investment.

The history

Clients of mine were in the business of providing service (let’s call their business ABC) and doing extremely well. They were doing so well that they had an offer from a multinational bank to either buy them out of ABC or invest in the business.

However wise heads prevailed and they agreed to start up a separate company (let’s call it XYX) with the bank providing all the finance, and it was agreed that over time my friends would use their profits to purchase equity.

XYZ was going gang-busters and poor old ABC was put on the backburner, but still ticking along; when out of the blue there was an earthquake in Chile. My friends heard about it on the news but didn’t think that it concerned them!

The multinational bank had loaned money to a mine in Chile in the earthquake zone, and this money was in jeopardy. Forthwith all assets relating to the multinational bank were frozen…worldwide!

So XYZ had its accounts frozen for three years and could only receive repayments on outstandings and otherwise their hands were tied.

My friends would have been destitute except that ABC was still operating and they were able to throw all their resources into it and leave XYZ to recover.

Eventually, the multinational bank recovered and the XYZ Company was able to kick on again. But it was a salutary lesson!

Jim Gleeson