Market correlations have been unusualy high over the last 5-10 years. If you’ve run concentrated portfolios with high beta and made decent calls, it’s understandable why you might think diversification is a junk idea (if you have something like a 15% hurdle rate, you are much more likely going to choose high beta stocks).
Meanwhile people who ran concentrated portfolios and made bad calls (and would have benefited from diversification) have been washed out of the market, so they’re not here to say “well, I was concentrated and it didn’t work out for me.” Those who did diversify haven’t had as large a return as those who concentrated, and so, while they are still here, maybe aren’t so excited about their rankings in the pecking order (diversified investors seldom are, because there are always some concentrated outliers performing better, even if they aren’t always the same investors getting those results).
Now, if you have put on a risk-mitigation smaller position in such an environment, it will naturally be a crappy performer at least in relative terms… that’s what diversification is about… when one set of assets does well, the other’s not supposed to do well at the same time. That’s pretty crucial - the “at the same time” part. Because diversification is *NOT* about finding something that is expected to go down if something else goes up… that’s hedging. Diversification *never* justifies investing in something that has a negative expected excess return. All that it means is that 1) long term expectations are positive, and 2) the *timing* of those excess returns aren’t synchronized.
The idea for diversified portfolios is that, over a wide range of market conditions, the diversified portfolio doesn’t go through the wild gyrations, and therefore can compound at a faster rate. The catch with compounding is that it can take a loong time to see the benefits. So diversification is more important if you have longer holding periods. For short holding periods, position sizing is more important for risk control.
If you are a value trader, diversification is probably not a big tool in your arsenal, although position size limits are. If you are a value investor, however, you’re going to be having long holding periods, and therefore diversification is more important.