diversification from a bottom up perspective

I have paid the price for a lack of diversification. Back in the days of my ignorance, I listened to the siren song of "experts" and bet a piece of my retirement plan on dominant stocks in the tech industry. I didn't understand valuation, projected future earnings, etc. I took a bath along with all the other 'me too' investors who believed the hype.
Later, having learned that lesson and developed a S&P 500 equivalent equity portfolio, I chose the biggest of the US retail banks for my portfolio. Little did I know that they were all taking on risk, betting on and against one another, leveraging heavily, packaging junk mortgages into securities for which they would become liable, etc. There, the specifics of my failure to understand was to trust an industry of a single country, with it's specific laws and the proclivity of it's highest executives to exercise (or fail to exercise) prudence in strategic planning. I doubt that anyone could have foretold the magnitude of the fiasco that followed, unless they were an industry insider. While American and European financial institutions failed or took government bail-outs, Canadian Banks clocked along just fine, as they didn't participate in the foolishness. As Mr Buffet says; invest in companies with a simple business model, where you know how they make money. GE was taken down by GE capital, not by their jet engines, CT scanners or other technology.

I'm not thrilled with the idea of purchasing equities in foreign countries, with difficult access to foreign stock exchanges, different accounting rules, currency risk and tax on dividends to foreign investors. So, I require my investments to have a listing on the NYSE or NASDAQ, or on the Toronto stock exchange in a pinch. However, there are many companies that do just that and allow diversification into the whole world. Some of the largest American companies on earth actually earn the majority of their profits overseas. They are not hard to spot.

One has to forgo that perverse urge to "beat the market" and instead focus on finding safe, steady earnings growth, low volatility, steady payments to owners (dividends) and focus on finding that in multiple industries in multiple places on earth. The good news is it's all doable. The bad news is that you have to keep paying attention. I took my eye off the ball on a few rural telecoms and lost most of the substantial gains I had accrued when I failed to recognize declining earnings. The market often forgets to reward outsized performance for a while. It never fails to punish declining earnings, especially when they are associated with "missed guidance".

I'm a "bottom up, one stock at a time" portfolio builder. Not that I don't own a few funds... I use funds to cover a region or a sector that I don't yet understand. In general, they haven't thrilled me with their incredible performance, but they offer some peace of mind on the diversification front. If you look closely, you can find some substantial yield in closed-end funds, so you continue to be paid to own a basket of equities.

I look at individual stocks based first on a dividend payment screen. That identifies companies who believe paying owners is important. Then, I look for growing dividends, based on growing earnings. Then I look at the payout ratio and take into account the industry and the type of equity (REITs and MLPs are required to pay out the majority of earnings). Then I think about sector diversity and I ask whether the company earns all it's money in one place, from one customer, etc. I check on current and historic valuation (I purchase that capacity so as to avoid a bunch of number crunching).

Then I make a choice to invest. I'm a buy and hold, and working to be a better buy and monitor investor. I like Mr. Buffet's predisposition to a "forever" holding period. However, I realize that the fortunes of companies change and I need to pay attention. When I check back in on an investment, I need to excercise the discipline to ask the real questions that matter.
Are earnings increasing? At what rate? Are dividends following earnings? Did something about the business fundamentally change? ( Think PCs to smart phones to tablets; in contrast to Coca Cola)

If you don't have the interest in paying attention, then you're an index mutual fund investor.
If you derive some pleasure out of tending your own garden, then portfolio management, bottom up, is a stimulating place to be. I wouldn't call it fun, exactly, as it is your future you're playing with. However, you either pay someone else, and trust someone else to do it for you, or you invest the time and educational requirement and take ownership of your results. What kind of investor are you?
I figured it out the hard way, and I'm reasonably happy with where I have landed.