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Diversification is an "Illusion"

10qk

William Spetrino Jr

0 followers
Billytickets discusses his understanding of focused investing, and why investors should not diversify.

The name of this site is GuruFocus. Ironically most Gurus are Focused investors. Buffett and Munger and Pabrai the 3 "deans" of value investing and my personal heroes all believe in making LARGE bets when the odds are in their favor. Buffett's purchase of American Express (AXP) during the "salad oil" scandal of 1963 had him put 40% of the partnership's assets into one asset. Buffett in his speeches to college students is famous for mentioning the card with 20 punches ONLY for your ENTIRE Investment career.

Munger, in his speech at USC at 1994 on a Lesson on Elementary, Worldly Wisdom as it relates to Investment Management and Business, said that you wait until you find a mispriced opportunity. The wise ones bet ONLY when they get that great opportunity. They bet big when they have that opportunity. The rest of the time they don't, it’s that simple. Later in the same speech he says that “most of Berkshire Hathaway and all of its accumulated billions, the top ten insights account for most of it. And that's with a very brilliant man ‑ Warren 's a lot more able than I am and very disciplined ‑ devoting his lifetime to it. I don't mean to say that he's only had ten insights. I'm just saying, that most of the money came from ten insights." Right now 3 stocks are responsible for 55% of the 40 billion dollar gain in Berkshire 's portfolio and 80% of that portfolio consists of 7 stocks (KO, AXP, WFC, PTR, PG, JNJ and MCO).

Mohnish Pabrai manages Pabrai Investment Funds and, since 1999, has "delivered annualized returns of over 28% (net to investors)." With a track record like that, he's worth listening to. As of March 31, 2007, Pabrai registered 13 holdings in his portfolio. Steel producer IPSCO (IPS) makes up 18.4% of the portfolio. The title of Chapter 10 in his book is "Few bets, big bets, and infrequent bets."

One reader on GuruFocus forum has 90% of his money in 2 stocks. (2 of my "favorites" I might add) These 2 stocks (JNJ and BRK-B) are both considered underpriced by Buffett and Pabrai respectively. GuruFocus.com shows how Buffett invested $1.5 billion in the first quarter giving him $3 billion invested total. Pabrai's purchase is recorded on GuruFocus.com and his interview on Bloomberg where he discusses his "forecasted" returns if BRK-B is purchased. Now really is further analysis needed? Are you so rich and have so much "extra" money that you don't need to be betting "every possible" dollar on what these 2 "experts" are doing. Win or lose the reader will be "following" Buffett and Munger and maximizing his investment "chances".

I understand that many are "impatient" and want to own "many stocks". Each person needs to do what suits his/her personality best. The stock you buy at 45 times earnings that doubles in 6 months might be profitable but you are not practicing value investing. The true value investor bets infrequently and on stocks that are "priced" appropriately. Buffett did not buy Wal-Mart, JNJ and Coke when the PE's were 35 but when they were "teenagers" (P/E in the teens). Pabrai in an interview in Feb 2007 with Emil Lee says the number one trait a successful investor needs is patience. (He also mentions GuruFocus in the same article on his lists of places he gets "ideas") He also says he is a shameless cloner. Want to make 28+% compounded annually? Do what Pabrai says. Become a shameless cloner. Financial "freedom" will soon come your way. I know it’s possible because it happened to me.

About the author:

William Spetrino Jr
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 3.3/5 (35 votes)

Comments

musto
Musto - 7 years ago
hey billy,

the way you put it, investing doesn't sound like a very difficult task.

Find a few mispriced equities, and have the wisdom to sit on your bum.

Aah, the boring life of a value investor.

kfh227
Kfh227 premium member - 7 years ago
Having learned of Pabrai eserval weeks ago, I'm starting to take a liking to him.
Valuemonkey
Valuemonkey - 7 years ago
While I like Pabrai, I wouldn't consider him a "dean" of value investing just yet. His track record just isn't long enough to be considered an all time great. He started his fund during a time when there were plenty of great value stocks and rode the value bull (like many value managers) the past few years to outstanding returns. Let see him sustain that performance over several cycles before anointing him.

gurufocus Wrote:

-------------------------------------------------------

> Billytickets discusses his understanding of

> focused investing, and why investors should not

> diversify.

>

> The name of this site is GuruFocus. Ironically

> most Gurus are Focused investors. Buffett and

> Munger and Pabrai the 3 "deans" of value

> investing and my personal heroes all believe in

> making LARGE bets when the odds are in their

> favor.
billytickets
Billytickets - 7 years ago
Your argument is aslight bit of validity but fact is Pabrai avearged over 30% annually for the last 8 years.despite the S&P losses in 2000 (9.1%) ,2001 (11.9) and 2002 ( 22.1). 2005 was only a 4.9% gain ,all thse were with dividends included. Not like the 1991-1998 period.That is no easy feat and hardly is a fluke. Has anyone in the world averaged over 30% annually in that same period period? Not exactly bull market years

My"instinct " is that Pabrai is the"heir apparent" to Buffett and closely resembles him in temperment and attitude. His focused disciplined approach is "buffettlike" but calling him a "dean" as you have mentioned is a stretch at this point though NO question.

Thanks for everyone who read this and commented.

Musto value investing IS THIS EASY if you wait for an opportunity to"scream at you" like JNJ and BRK-B does NOW.

The hardest part is not to get "distracted" by all the Higher potential "maybes" and "settle" for 15-20% annual returns with JNJ and Brk. Mohnish and WEB can do all the"deep thinking". Keep the faith my friend.peace
Valuemonkey
Valuemonkey - 7 years ago
To be honest, I really don't care what the S&P did. The early 2000s was a fantastic time to invest. Mr. Market was depressed and the market was full of great bargains. Small caps were especially attractive with many companies growing +20% trading at ridiculous valuations (<5 forward P/E).

I think Pabrai would be the first to admit this was a great time to open shop.


billytickets Wrote:

-------------------------------------------------------

> Your argument is aslight bit of validity but fact

> is Pabrai avearged over 30% annually for the last

> 8 years.despite the S&P losses in 2000 (9.1%)

> ,2001 (11.9) and 2002 ( 22.1). 2005 was only a

> 4.9% gain ,all thse were with dividends included.

> Not like the 1991-1998 period.That is no easy feat

> and hardly is a fluke. Has anyone in the world

> averaged over 30% annually in that same period

> period? Not exactly bull market years

>

> My"instinct " is that Pabrai is the"heir

> apparent" to Buffett and closely resembles him in

> temperment and attitude. His focused disciplined

> approach is "buffettlike" but calling him a "dean"

> as you have mentioned is a stretch at this point

> though NO question.

>

> Thanks for everyone who read this and commented.

>

> Musto value investing IS THIS EASY if you wait for

> an opportunity to"scream at you" like JNJ and

> BRK-B does NOW.

>

> The hardest part is not to get "distracted" by all

> the Higher potential "maybes" and "settle" for

> 15-20% annual returns with JNJ and Brk. Mohnish

> and WEB can do all the"deep thinking". Keep the

> faith my friend.peace


kfh227
Kfh227 premium member - 7 years ago
valuemonkey,

I know alot of people that bought REITS in 2000/2001, myself included. Today, they are all drooling over financial stocks. I'm trying to persuade them to join the forum. We'll see....
billytickets
Billytickets - 7 years ago
30+% annual compound returns over the last 8 years ( or any 8 years) is HUGE >Name someone else who achieved as well in the same tiime period.please
kfh227
Kfh227 premium member - 7 years ago
billytickets Wrote:

-------------------------------------------------------

> 30+% annual compound returns over the last 8 years

> ( or any 8 years) is HUGE >Name someone else

> who achieved as well in the same tiime

> period.please

As much as I don’t want to say it’s a statistical anomaly, I have to say the following. That is one hell of a record for 8 years! And probably is now far beyond anything that can be confused with luck.

The other thing though is that some want to see 15, 20, 30 year histories of performance. Make this kind of performance something demonstrated by an established career, then the term Dean can be used.

I don’t think people are trying to take away from Pabrai’s performance. It is to be admired. I think you just misunderstood what was said by valuemonkey.

Disclaimer: I might even go into a Pabrai Fund in the next few months once my cash horde is built up a bit.

billytickets
Billytickets - 7 years ago
I "understood" what he meant and said I agreed that calling him a "dean" was abit of stretch.

What i find "ridiclious" is someone saying that what he did in an 8 year span was no big deal because the market was "depressed' 30+% annual returns compounded over 8 years are impressive and my guess is that No more than a dozen "money managers" compounded their money at that high arate in that time span. I really do not know of amoney manager who admits he is "shamelss cloner" of Buffett who has the tempermant and record to prove it. I know that calling him a dean is a "stretch" but its clear( to me anyhow) that he is Buffettlike.peace

Valuemonkey
Valuemonkey - 7 years ago
Where do I say +30% returns was no big deal? To avoid any more confusion, let me clarify my points.

1. 30% returns are fantastic, but I want to see if Pabrai can sustain those returns over several cycles and a larger asset base.

2. I think Pabrai is a great value investor, but I believe his small asset base, concentrated portfolio philosophy, and favorable investment environment all played a role in boosting returns to 30%.

3. Regardless of how the S&P index performed, the early 2000s was a favorable investment environment for value investors.

billytickets Wrote:

-------------------------------------------------------

> I "understood" what he meant and said I agreed

> that calling him a "dean" was abit of stretch.

> What i find "ridiclious" is someone saying that

> what he did in an 8 year span was no big deal

> because the market was "depressed' 30+% annual

> returns compounded over 8 years are impressive and

> my guess is that No more than a dozen "money

> managers" compounded their money at that high

> arate in that time span. I really do not know of

> amoney manager who admits he is "shamelss cloner"

> of Buffett who has the tempermant and record to

> prove it. I know that calling him a dean is a

> "stretch" but its clear( to me anyhow) that he is

> Buffettlike.peace

>


billytickets
Billytickets - 7 years ago
Ok value i understand. Even if Pabrai "slips to 20% in the next 8 years it is darn good. Thanks for clarification.peace

rjlull1
Rjlull1 - 7 years ago
Diversification is great for the herd but focused investing is for the outliers. Don't believe the status quo. You will most likely make more money by placing large amounts into a "sure thing" than by placing small amounts into many stocks.

How do you find the "sure thing"? You must gain insight, independence, rationality, style, fortitude and experience young Jedi. The most important quality of all is PATIENCE. Do not over-intellectualize things. Wall Street is not brain surgery although there are many who will tell you otherwise.

You also have to develop a plan of attack once you see the opportunity because a "sure thing" doesn't happen too often. My last "sure thing" was buying large amounts of COP at $57 a share in Sept 2006. I still own it.

A good start.....Read everything about Seth Klarman, read Poundstone's book "Fortune's Formula" re: the Kelly Formula, learn about business cycles, learn the concepts of RISK vs REWARD, also learn to filter out the B.S. and fluff that is everywhere on Wall Street.

Then make millions!

Valuemonkey
Valuemonkey - 7 years ago
Getting back on topic. What about flipping the concentrated portfolio approach on its head and investing in hundreds of companies but concentrate the number industries you invest in?

I think Jeffrey Gendell of Tontine Partners has been very successful taking this approach.
musto
Musto - 7 years ago


What's the advantage in doing that

other than specializing in those industries?

But you're also limiting yourself to a limited universe.

Valuemonkey
Valuemonkey - 7 years ago
Concentrated industry approach typically involves identifying a special situation/catalyst that will benefit (and add value) to many companies within the same industry. Probably the most common industry plays are consolidation, restructurings/turnarounds, and business cycles.

A simple business cycle/consolidation example (that Gendell used) would be investing in several regional banks during a down cycle with the knowledge that banks tend trade at depressed multiples during bear cycles and their multiples tend to expand during the upcycle. Couple that with the fact that the industry as a whole has been consolidating and you have yourself an interesting industry play. Copper mines and stock exchanges would be other industries with consolidation trends.

Industry restructuring/business cycle examples include thrift conversions (Klarman's book), Steel (Wilbur Ross and Gendell were big in this space), and oil tankers (Pabrai).

I think distressed investors tend to be the biggest follower of this industry-centric investment approach since companies within an industry tend to fail (and succeed) in bunches. Once an industry consolidates/recovers/improves, you move on to the next 3-4 industries that are ripe for consolidation/turnaround/restructuring/improvement.

musto Wrote:

-------------------------------------------------------

> > What's the advantage in doing that

> other than specializing in those industries?

> But you're also limiting yourself to a limited

> universe.

>


musto
Musto - 7 years ago
I can see how that would work.

thanks

buffetteer17
Buffetteer17 premium member - 7 years ago
I suppose sector betting can work--seems to be Ken Fisher's approach and he does okay. But I have a hard enough time just understanding a single company. It is not for the dilettante investor such as myself. Also I think it is probably more rare to find a sector 50% underpriced than a company 50% underpriced. But as they say, "All roads lead to Rome."
billytickets
Billytickets - 7 years ago
like WEB says diversification is great for the no nothing investor. All of us here are not"average". I agree totally with buffetteer17 . I only see 2 "sure things" at these prices and a bunch of "good ones" which i do not invest in because my tickets and sports memorbalia get me high returns on amounts under 50K. Munger said Warrens 10 best ideas have been responsible for Berskires 175 billion of book value in increase in last 40 years.peace
billytickets
Billytickets - 7 years ago
personally i can not bet sectors. Its like betting on "italian landscapers" as investors we are able to "distinguish"
billytickets
Billytickets - 7 years ago
Ken fisher has had success as a "marketer" but does anyone know his actual record as an investor ? Me and stockdoc were chatting today and neither of us are too "impressed"
billytickets
Billytickets - 7 years ago
Anyone have 70% or more in just 3 or 4 stocks?
armeetofo
Armeetofo - 7 years ago
i have 100% in 4 stocks.
musto
Musto - 7 years ago
armeetofo,

you're a real man my friend.

armeetofo
Armeetofo - 7 years ago
musto:

thanks
buffetteer17
Buffetteer17 premium member - 7 years ago
I had 60% in EBAY+GRMN for a while. But when GRMN went over 80, I reduced. Now have 70% in my top 7 stocks. That makes me a wuss I guess.
valuefan
Valuefan premium member - 7 years ago
I seem to be alone on this board in holding a lot of positions, rather than concentrating on a

few. I have over 200 stocks in my portfolio, though some are more overweighted than others.

If I had a lot conviction in just a few, then I would hold just those few. In my experience

with using newsletters, I have never seen a "best of" or "best buys" or "stock of the month"

portfolio outperform the larger portfolio of the newsletter. Just the opposite. And I have been

through a number of bankruptcies on my favorite positions, which were bad enough being

overweighted, but would have been fatal if I had been concentrated. I do have a lot

of risky small caps though, and that is one reason I hold so many stocks.

I guess i see the margin of error as being very large in stock picking.

billytickets
Billytickets - 7 years ago
valuefan the margin of error is in STOCK PICKING For 99% of teh companies is LARGE. Small or Big Cap. Also most newsletters guys are not that great because if they were they would be investing their own millions and quit trying to"educate" the masses.lol. when I made my first LARGE investment ever in Altria the dividend yield was about 8.5% and i was borrowing money at 5% with the #1 tobacco company,#2 beer company and number 1 food company in America. It really wasnt a "stretch".In my next article That will explain how important a high dividend yield stock is combined with averaging down. There are presently 30-45 companies whose chance of doing more bsuiness in 5 -20 years is almost 100% which is all you can do as an investor. What is everyone here's annual goal for rate of return?Mine is 15% annually and after agreat start Iam presently "behind schedule "so far. peace
armeetofo
Armeetofo - 7 years ago
billy,

do you mind to share ideas about borrow money from relatives?

how long do i borrow?

do i need to sign a contract with them?

what is the interest rate?

thanks
valuefan
Valuefan premium member - 7 years ago
I see what you are saying Billy. The best stocks are obvious and the others are too hard to pick.

I agree about the value of dividends. These are the stocks among my favorites that look very

good here in relation to their dividend history.

PFE

JNJ

HD

WM

C

ALL

mattray253
Mattray253 - 7 years ago
I have to admit that billytickets has made a believer out of me for JNJ, and I increased my holdings in that last week at $60.25. But at the same time, I feel obligated invest in some oil stocks, "just incase" we hit some oil crisis. And at the same time, I also can't resist buying housing and banks at these lows. All in all, it put me at around 7 stocks. Somehow I feel guilty for not being more concentrated.
billytickets
Billytickets - 7 years ago
mattray253 thats ok you are 'allowed' to admit Billytickets made you see JNj was a good investment. Some get mad i hype it to much but WEB has put in 3 billion so you are really taking"his advice'. JNJ as peopel who have read my book Consume Consume and Consume More the "bible" of becoming financially wealthy KNOW my formula LOVES JNJ but "buffett's AFFRIMATION is what matters most. Buffett sold Petrochina and personally I think oil is on the way down for teh "short term' anyhow,but respect what you did.housing and banking will do well long term but i think there is still more "dark clouds". JNJ will simply never be this cheap again. Altria went down as low as 63 and is now over 66. be watching for "dips" and exploit Mr Market.peace

Valuefan and mattray253 .Valuefan u are correct when u say the great ones are OBVIOUS while many are "too hard". banks ,especially ones with div yields over 4.5% are FINE ONLY if you are going to AVERAGE DOWN EVERY 10-15%. Not doing so is giving up your "basic advantage". A GREAT DIVIDEND stock you did not mention is MO.KFT is ok but MO has a great ROC and ROE. Buying it today in the 63's will prove to be wise.

Armeetofo I will NOT borrow money at more than 7%. My book gives many of the sources I use personally use and have used to raise capital. Many people have older relatives who want ahigher return than 5% on their money. "cheap money" is all around you the KEY is having the MINDSET to find it. GRet posts ALL 3 of you this thread will continue to "build speed" the more VARIOUS people( not just me talk) Everytime ONE of us talks ALL OF US That are"listening" GETS SMARTER.peace
valuefan
Valuefan premium member - 7 years ago
I bought more JNJ today too Billy. What do you think of this logic, on top of all the good points

you brought out about JNJ I am overweighted in

tech hardware, so JNJ is a good hedge against that, in case the economy slows.


billytickets
Billytickets - 7 years ago
valuefan GLAD YOU REINVESTED IN JNJ. ALL my stocks BRK BUD KFT MO and JNJ are all HEDGES against a SLOWING economy ,INflation and Falling U.S dollar.Billytickets believes in HEADS I WIN Tails you LOSE INVESTING.

Remember in the stock market and in business and gambling when peopel with MOney meet peopel with experience. The peopkle who start with money get the"experience" and the people with the experience get the MONEY. If you do NOt have the experience listen to guys like WEB who DO. Its really this simple

Valuefan which tech hardware stocks do you have?share them if u dont mind
valuefan
Valuefan premium member - 7 years ago
Billie,

I'll list the tech hardware that I own and would buy here if I did not already own, as that

is more interesting in holds that may be approaching sell limits. And I will skip the really

tiny ones.

SGTL

NTE

SANM

EXAR

IDTI

VSH

SSTI

JJINVEST
JJINVEST premium member - 7 years ago
I read dhandho investor over the weekend. It was exhilarating. I am totally going to change my portfolio to a more concentrated one. As I looked through it over the weekend though, this is hard. I guess that it is always easier to buy some stocks, thinking that, "well if it drops more, I can add more." but I end up having 40+stocks!!!

I don't think that I can concentrate to 10. But I am going to make an effort to concentrate to 20 or below.

One possiblity I have is to make my big/mega caps bigger, say 15% each. Smaller caps I will keep at 5-7%. That will allow me to cut down the number of stocks. The big/mega caps I have in mind are JNJ, BRK-B and WMT. They can comprise 45% of my portfolio, then I go from there!

dhandho investor is great! It really shows that no one makes a fortune by buying a little bit this and that....

buffetteer17
Buffetteer17 premium member - 7 years ago
If you want to have a little oil and gas, I like Devon Energy DVN.

- my fair value est. 102, currently undervalued by 27%

- almost all reserves in North America

- market cap 33B, could be bought out by one of the majors

- several gurus like it: Eveillard, Davis, Dreman, Muhlenkamp, Dodge & Cox
billytickets
Billytickets - 7 years ago
Buffetter17 thanks for tip. i like the"explanation that goes with it. very logical

Valuefan give us all the stocks small and large

JJINVEST: Look you arent going to go from 40 stocks to 5 overnight( nor should you) but it is apparent from your post that the"lightbulb" is now ON. Hopefully it will help ILLUMINATE others. Remember EVERY TIME someone posts EVERYONE who is ACTUALLY listening will be LEARNING

armeetofo
Armeetofo - 7 years ago
billy:

i got you, thanks a lot, i might set this one in my investment principles.
billytickets
Billytickets - 7 years ago
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Reuters

J&J to cut 3-4 pct of work force in restructuring

Tuesday July 31, 8:55 am ET


NEW YORK (Reuters) - Johnson & Johnson (NYSE:JNJ - News) on Tuesday announced plans to eliminate 3 percent to 4 percent of its global work force of about 120,500 people as part of an effort to improve its cost structure.

ADVERTISEMENT











The diversified health care company, whose shares rose nearly 2 percent in premarket trade, said it expected the cost cuts to generate pretax savings of $1.3 billion to $1.6 billion in 2008.

J&J plans to seek savings from its pharmaceuticals division, becoming the latest large drug maker to restructure in response to patent expirations to major products.

The company also will look for savings at its Cordis franchise, where its drug-coated stent business is struggling with safety concerns and competition.

Jeff Jonas, a portfolio manager with Gamco Investors, called the restructuring "very positive," noting it also comes on the back of a $10 billion stock buyback plan announced by the company earlier this month.

"I don't think it's a sign of desperation at all," Jonas said. "It's really just a matter of responding to the reality that's out there in the marketplace."

J&J expects to take associated pretax restructuring charges of $550 million to $750 million in the second half of the year. It confirmed its prior 2007 earnings outlook of $4.02 to $4.07 per share, which excludes such charges.

"These actions we are taking to improve our cost structure will enable us to continue investing for future growth and profitability," Chief Executive William Weldon said in a statement.

The J&J restructuring announcement follows others from Pfizer Inc. (NYSE:PFE - News) and Merck & Co. (NYSE:MRK - News)

J&J plans to consolidate certain operations in its pharmaceuticals division as it faces patent expirations to big-selling drugs such as its Risperdal schizophrenia treatment and Topamax epilepsy drug.

The company is trying to reduce its cost base while continuing to invest in newly launched products and its late-stage research pipeline. J&J plans to seek approval for seven to 10 new drugs between 2008 and the end of 2010.

At Cordis, the company's drug-coated heart stents have been hit with safety concerns after being initially hailed as revolutionary. Cordis sales fell 20 percent in its most recent quarter.

Johnson & Johnson shares were up $1.18 at $61.25 in early electronic trading from Monday's close of $60.07 on the New York Stock Exchange.



billytickets
Billytickets - 7 years ago
Hope you and portfolio will be able to handle all the volitility . Wouldnt you like to be 100% in BRK right now with WEB sitting on 46 billion "waiting to pounce".
billytickets
Billytickets - 7 years ago
Take the billytickets test. Examine EACH STOCK in your portfolio and ask yourself would "IT" to be 50% of your TOTAL PORTFOLIO.

All this volitality is separating the REAL INVESTORS from the IMPOSTERS.peace
billytickets
Billytickets - 7 years ago
all this volitality making you rethink your strategy.lol
armeetofo
Armeetofo - 7 years ago
billy:

thanks for the valuable advices,

my strategy has been served me well and stick with me the rest of my life,

happy investing!
JJINVEST
JJINVEST premium member - 7 years ago
I like the concentration portfolio. Since I switched to that, it has made it so much easier for me to sit on the sideline and wait for an opporunity. I have 20% cash. Even if the market goes up, I know that I just need one more pick and I can just put 10% to work, then I am done buying. I won't be tempted to buy a little of this and that anymore, as the market goes up and I fear being left behind.
armeetofo
Armeetofo - 7 years ago
DJ drop 2.83%, mine is only 2.18%, not bad uh?
billytickets
Billytickets - 7 years ago
JJINVEST congratulations you "see the light".Very few do.You are smart person this will help you"finetune" your already sound principles
JJINVEST
JJINVEST premium member - 7 years ago
Thanks Billy. This downturn has helped tremendously. With many good stocks dropping, I could sell all the noisy stocks and keep on buying a couple stocks I like.
billytickets
Billytickets - 7 years ago
JJ I agree that the concentration portfolio is better. FYI in the Siegel study thread that I started over a 46 year period 18 of the top 20 stocks in the S&P were either consumer stocks or Pharmasetuicals
billytickets
Billytickets - 7 years ago
FYI : at 2006 year end WEB the greatest investor ever had 61.6% of his known stock positions in just 4 stocks AXP,KO WFC and P&G .which have "great" moats.peace
armeetofo
Armeetofo - 7 years ago
billy:

thanks for your link, very useful.
billytickets
Billytickets - 7 years ago
Thanks armee please read this article peopel if you havent already http://www.gurufocus.com/forum/read.php?1,13209
billytickets
Billytickets - 6 years ago
If you read this YOu will find out how much this speech by Charlie Munger has influenced me. READ AND REREAD THIS WEEKLY [www.trailblazercoaching.com]
billytickets
Billytickets - 6 years ago
see those peopel who think i dont like your guy Mohnish it is NOT true. I just am nota uncertaintity guy. i like the game BILLYTICKETS WINS>LOL
billytickets
Billytickets - 6 years ago
See reread the article and notice that the poster I mentioned in my article who just had JNj and BRK/B at the time is SLEEPING like a baby while many of you got stuck with some stocks which were not as good as you once thought. JNJ is only up about 14% since the article and Brk/B is only up about 30% . Reread all my series of 12 articles and then read all the comments.


See whose comments stood the test of time and then see whose comments look pretty dumb now

Smart peopel learn from OTHER people's mistakes.peace
valuemodel
Valuemodel - 6 years ago
I am fairly new to this site, but I would like to add my minority views to those of Valuefan and Valuemonkey.

The point I would like to make here is not about diversification for the sake of diversification, but how we might arrive at the optimal number of stocks in our portfolios to suit our personal temperaments. For me, being inclined towards humility and conservatism, I asked the question, how much was I willing to lose on an absolute basis (risk, not volatility). Though it is unlikely for me to invest in an Enron, things can and do go wrong with notable frequency. The amount I am comfortable risking turns out to be somewhere between 2 and 4%. So, I own more stocks than most of the posters here, and probably also typically own more cash, and perhaps even a higher average yield. I will share my results at the bottom of this message.

First, I would like to remind some of you that the father of value investing himself, Benjamin Graham, claimed that a non-professional investor could generate good results by screening for stocks based on his value parameters.

So, this is essentially what I do. I screen for stocks based on value, and then I do further research on the most attractive ones. Fundamental things I consider include the balance sheet, degree of leverage, growth in book value; qualitative includes balance sheet history, leverage, etc.), Qualitative includes law suits, recent CFO departures, etc., and then perhaps maybe most importantly, I try to figure out how companies might be vulnerable or where the environment might go wrong and how that would affect the stock price. (That's why I haven't owned homebuilders or U.S. banks, and unfortunately, it's why I've missed MO!)

This has not been a straight-line process for me. My biggest mistakes have happened because of UNCRITICALLY accepting rules of thumb (for example, one I've seen posted here is selling stocks at a P/E of 25), or model outputs (e.g., the stocks from Magic Formula Investing). And also by investing more money than my current rule in the stock that I had researched the most, thinking I knew it well, and holding and adding to it as it continued to spiral down. Investing is just not that easy, and try as I might, I do make mistakes. But the way I can sleep at night is knowing that if I do have a value-trap stock (I have never owned anything like an Enron, knock on wood), it won't obliterate 10% of my portfolio.

My results: 23% 5 year annual return, worst year, down 3%, while the S&P500 was down double digits, last 12 months, 23%.

Bottom line, know for yourself why you do what you do.

billytickets
Billytickets - 6 years ago
valuemodel EXCELLENT speech. I do sell my"large caps" at a PE of 25 or more though because "history" has proven that to be Prudent. Check out this article and please give your opinion http://www.gurufocus.com/news.php?id=8103 Obviously a new "growth stock" like a Google has "different rules but they are not in my "universe".


As you have stated there are MANY ways to achieve success.Walter Schloss always owned hundreds of "cigar butts" and found his niche .WEB and Charlie started out under graham but have become more Phil fisher like. I would love to own 20 stocks but have never been able to get my "money in right" on more than a few. Stocks liek BUD KFT and MO and BRk/B got CHEAP this year but I bought JNJ and BNI INSTEAD because I didnt have any.

Your comment about studying the "macro economic" scene is EXCELLENT.WEb says he does not do it but he has predicted a falling dollar and has loaded up on multi nationals and companies like Iscar and BNI conoco Phillips ( over 12 billion into 3 companies) which "indirectly" benefit from the macroeconimc "trends"he sees ,Falling dollar lower interest rate cuts which leads to a weaker dollar and high gas prices whih gives BNI a moat

Despite having half my portfolio in 1 stock andmy top 6 being 98% from 2003 on I have done 69.6,15.5, 29.3% 28.4% and this year Iam over 25% with NO liquidating of my top 6 positions in that time span which is very similar to your excellent returns

I do not feel as confident as you do in owning 25 positions I have found that my "best Ideas" seem to be limited to a couple per year. EACH person MUST develop his or her own style LIKE YOU HAVE ACCURATELY stated.

The point of my article was not to say that other styles such as yours or Schloss is "wrong". But to let some "newbies" KNOW that Munger has said the bulk of BRK/B gains has been froma handful of investments. My portfolios chence for "high returns" is MUCH less than yours and others but my "defensive "multinational high cap makeup will make it less likely to decline during unfavorable times. Great post it is clear you are VERY INTELLIGENT.I look forward to your future posts.peace
valuemodel
Valuemodel - 6 years ago
Thank you. Your results are superb: you make it look easy, but we all know it is not. I may have to read your book. I'm always finding things to learn.

A couple of quick things to point out re: Munger's comments: in hindsight, you find out which stocks account for most of your gains. Hard to know before you go in. I would never have guessed which ones of my stocks would have gone on to be so disporportionately rewarded in the stock market either. I've long done the risk-reward analysis made famous by Pabrai; however, in spite of this, I tend to underestimate the rewards. I am one of those early sellers, i.e., once a stock is up 20%, by definition it no longer has the 50% potential I thought it had when I first bought it. This may be my biggest ldeficiency, and maybe the reason I may have to read your book.
ceiga
Ceiga - 6 years ago
Regarding posting no 12 of this thread, how and from where to learn about business cycles ??

cheers

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