Concentrated Investing
Definition & Origin
Buffett opposes over-diversification. He quoted Mark Twain: “Put all your eggs in one basket, and then be optimistic about that basket.” He believed that if you really understand a business, concentrated investment is safer than diversified investment.
Key Points
- Deeply Dive into Few Opportunities: Instead of just dabbling in 100 stocks, dive into 5
- The higher the certainty, the bigger the position: Bet more on opportunities with high certainty
- Dispersion is the protection of ignorance: You only need to disperse widely if you don’t know what you are doing
Case Studies
- American Express (1964): Invested 25% of capital in a single stock during partnership period
- Apple (2016-2022): Berkshire’s largest holding, once accounting for more than 40% of the portfolio
Related Concepts
- Circle of Competence — The prerequisite for concentrated investment is a deep understanding
- Margin of Safety — There should be a margin of safety even with concentrated investments
Letters Mentioned
From his partnership days to his Berkshire days, Buffett has always been a practitioner of concentrated investment.