Students from Emory’s Goizueta Business School and McCombs School of Business at UT Austin were invited to come visit Mr. Buffett for a Q&A session.
I have 2 views on diversification. If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time. Make sure you don’t buy at the wrong price or the wrong time. That’s what most people should do, buy a cheap index fund and slowly dollar cost average into it. If you try to be just a little bit smart, spending an hour a week investing, you’re liable to be really dumb.
If it’s your game, diversification doesn’t make sense. It’s crazy to put money into your 20th choice rather than your 1st 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.
Charlie and I operated mostly with 5 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.
Over the past 50-60 years, Charlie and I have never permanently lost more than 2% of our personal worth on a position. We’ve suffered quotational loss, 50% movements. That’s why you should never borrow money. We don’t want to get into situations where anyone can pull the rug out from under our feet.
In stocks, it’s the only place where when things go on sale, people get unhappy. If I like a business, then it makes sense to buy more at 20 than at 30. If McDonalds reduces the price of hamburgers, I think it’s great.
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3 responses so far ↓
1 Saikat Bose // Mar 13, 2008 at 10:49 pm
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2 REZA NADERI BENI // Mar 23, 2008 at 7:29 am
i am reza naderi beni from iran
me and my family are very very poor because the regime of iran is a dictator regime and every country do boycoot my country .
please if mr warren buffet can help us by this detail information send or transfer some money by this account number detail::::::::
name of reciver : reza naderi beni
name of bank in iran/isfahan:bank melli iran isfahan branch
account number : 3001/2/250/1377
swift code : meliirthifn
3 TONY // Apr 20, 2008 at 10:14 am
Dear sir,
I am tony from south india , 24 age] I am from poor family , my father was farmer in my village . he is no more now dead .
now I have one sister & mother my sister is studying 8th class I am also studying in degree , my mother is working in house maid in my place some houses ..now she is very tired . I am working in one tea shop now for a part time, so very difficult to maintain my sister study & mother medicines . we don’t have own house also please help us , I am pleading you name of god please help us ………. god give u something special in ur life . becoz we are very poor family .
Thanking you
your’s sincerely
tony_jecob@yahoo.com
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