> Warren Buffett Blog: Diversification vs Stock Picking | Warren Buffett

Thursday, September 24, 2015

Diversification vs Stock Picking | Warren Buffett

If it's your game, diversification doesn't make sense. It's crazy to put money into your 20th choice rather than your first choice. 

'Lebron James analogy.' 

If you have Lebron James on your team, don't take him out of the game just to make room for someone else. If you have a harem of 40 women, you never really get to know any of them well.

Concentrate your assets if you know what you are doing

Charlie and I operated mostly with five positions. If I were running 50, 100, 200 million, I would have 80% in 5 positions, with 25% for the largest. In 1964 I found a position I was willing to go heavier into, up to 40%. I told investors they could pull their money out. None did. The position was American Express after the Salad Oil Scandal. In 1951 I put the bulk of my net worth into GEICO. Later in 1998, LTCM was in trouble. With the spread between the on-the-run versus off-the-run 30-year Treasury bonds, I would have been willing to put 75% of my portfolio into it. There were various times I would have gone up to 75%, even in the past few years. If it's your game and you really know your business, you can load up.