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Bill Smith
Bill Smith
Articles (43) 

Portfolio Concentration: Big Bets Vs. Small Bets

May 24, 2011

In my weekend reading, I came across a 2007 presentation titled, “How Concentrated Should You Be?” by Zeke Ashton of Centaur Capital Partners.

In it, he discusses the concept of portfolio concentration, but with a twist. He believes super-concentrated portfolios require a blend of manager and capital attributes that only a few investors have. Therefore, some small positions are worth having as long as they add a unique element that contributes something to the payoff profile of the portfolio as a whole. He discusses how combining large concentrations of his best ideas with a number of smaller positions improves both returns and reliability of returns.

In this presentation he:

  • Lists the various methods of value investing
  • Discusses four investment ideas and reasons for their smaller position size in his portfolio
  • Reviews the portfolio concentration of noted value investors
  • Outlines the Centaur Portfolio Model for position sizing, long and short
  • Points out various truisms and food for thought to assist an investor in judging how concentrated to be

I found it to be illuminating since there’s not much literature with respect to portfolio management. I hope you’ll find it interesting as well. You can read the full presentation here.

How concentrated are you? What are your portfolio management guidelines? I look forward to your responses.

About the author:

Bill Smith
I'm an IT professional and a private individual value investor with degrees in electronic engineering and business economics. My major investment influence is Warren Buffett--finding "wonderful companies trading at wonderful prices".

Rating: 3.3/5 (8 votes)


Adib Motiwala
Adib Motiwala - 6 years ago    Report SPAM
He is one of the Gurus on GuruFocus....He has a lot of great stuff. I have a few more articles/presentations on my blog.
Batbeer2 premium member - 6 years ago
How concentrated are you? What are your portfolio management guidelines?

You can only deal rationally with mr. Market by sticking to what you are personally comfortable with. It's as simple as it is difficult. It's also personal.

1) There are four companies in my portfolio, down from about six last year.

2) I try not to think of these companies as a group. Having said that, I buy only what I think is the best in the business..... Effectively, I won't own two stocks in the same industry.

Before I buy or sell I force myself to imagine what I would do if I were (or were looking to be) the outright owner of that particular business. More often than not, the effect is that I do exactly nothing.

Last year, I put 20% of my money to work in one stock.... no that's not unusual for me. At the time I thought it was cheap. Now, I still think it's a cheap stock but alas, it's 50% of my portfolio.

There are many reasons to scale back that position. All that's kept me from doing anything is the fact that I believe the outright owner of that business would not dream of selling. Thinking like an owner leads to some unusual behavior.

Curious ? You can find my US stocks (and turnover) in my public portfolio: http://www.gurufocus.com/ic/space.php?do=portfolio_view&id=6790&uid=35024&tab=overview

Just sharing some thoughts.
Bill Smith
Bill Smith - 6 years ago    Report SPAM
Adib: thanks much, good stuff. I wasn't able to leave a comment on your GME post, but congratulations! It's always nice to hear a good news story. I wish you much success. Were you able to take the 65 w/o being sponsored? Were there any other testing/legal startup requirements you had to meet?

Batbeer: I agree with you, I try to think like an owner as if I were buying the whole thing. My Roth only has 2 companies at the moment: SAM (80%), DLB (20%). I would have more ideas in there, but that's a function of not having contributed new capital to the account yet, the 401K's getting that :-)

Adib Motiwala
Adib Motiwala - 6 years ago    Report SPAM

Just saw this post. thanks!!. I was able to take the Series 65 without sponsorship. Series 7 needs it.

No other tests. I formed a LLC and then filed for RIA in the state of Texas.

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