Below are the thoughts and quotes of two of the most revered investors of our generation:
Warren Buffett said in 2008 that in his early days, he would have 80% of his portfolio in five positions, with 25% in the largest. In 1998, he advocated for having six positions with half in the best idea. “Very few people have gotten rich on their seventh best idea,” Buffett has said, “but a lot of people have gotten rich with their best idea.”
Buffett supported having only five positions for portfolios with assets around $50 million to $200 million. At Berkshire Hathaway, which has a portfolio valued at $221.02 billion, he has had to diversify, but he still allocates 25.79% of assets to Apple Inc.
Stanley Druckenmiller "The first thing I heard when I got in the business – not from my mentor – was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept ever."
Look at all the great investors that are as different as Warren Buffett, Carl Icahn, Ken Langone, they tend to make very, very concentrated bets. They see something, they bet it, and they bet the ranch on it. And that’s kind of the way my philosophy evolved… The mistake I’d say 98% of money managers and individuals make is they feel like they’ve got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket carefully."
Warren Buffett put it best: “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
The views of Warren Buffett and Stanley Druckenmiller are contrary to what I learned studying finance and during my time on Wall Street. We've mastered consumption, we've mastered labor, its now time to follow the lead of billionaires and master capitalism. Wall Street has decided that there is a product for everyone.
Now is the time to turn our retirement accounts into wealth creation accounts. Today, the high cost of living demands that we earn more on our money, especially since most of us are unable to invest more.
As my dad would say, it's time to use your head for more than a hat rack. It's time for deliberate concentration and thought.Tim