Final answer:
True, investors prefer diversified companies or portfolios because diversification reduces the risk by spreading investments across various assets, thereby guarding against the poor performance of any single investment.
Step-by-step explanation:
True. Investors prefer diversified companies because they are considered less risky. When an investor buys stocks or bonds from a single company, they are exposed to the company-specific risks, which include poor management decisions, unfavorable market conditions, and other factors that could negatively affect the firm's performance. However, when investors diversify their portfolio by investing in a variety of companies, they mitigate those risks. Diversification follows the logic of the proverb "Don't put all your eggs in one basket," as it spreads the potential risk across multiple investments. In the context of mutual funds, diversification allows investors to own a slice of a larger pool of investments, which can balance out the performance; some companies within the fund may perform well while others may not, thereby reducing the impact of individual company failures on the investor's portfolio.