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, Financial) 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, Financial) 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.
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, Financial) 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, Financial) 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.
