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the Mickey Mouse silhouette can now be found on toys, clothes, books, stationery, and a multitude of other products. Disney has diversified not through its key skills--after all, running a theme park or a cruise ship has little in common with making a cartoon--but through its audience. The people who go to Disney's theme parks or buy its branded clothes are the same people who enjoy watching its cartoons and movies. This strategy--launching completely different products, aimed at existing customers--is horizontal diversification in action.

look at a company that is about as different from a drug cartel as one could get: Disney. The Walt Disney Company started off making cartoons. Those cartoons established a following among children and their families, so Disney set about diversifying into all manner of other businesses, from theme parks to vacation cruises to television broadcasting, which it now sells to the same customers. "I suppose my formula might be: dream, diversify and never miss an angle," Walt Disney once said.

"I believe that 98 or 99 percent--maybe more than 99 percent--of people who invest should extensively diversify and not trade. That leads them to [a tracker] fund with very low costs." --WARREN BUFFETT,

It is important to diversify within stocks, but it's even more important to allocate across the different asset classes--like stocks and bonds. Investing in only one category is dangerous over the long term. This is where the all-important concept of asset allocation comes into play. Remember it like this: Diversification is D for going deep into a category (for example, buying different types of stocks: large-cap, small-cap, international, and so on), and asset allocation is A for going across all categories (for example, stocks and bonds).