Saturday, 14 December 2013
Investing heavily in your best ideas
While this may be a scary choice to make – concentrating your investments in a few stocks – that is what the young Buffett was doing in 1960s.
Sanborn, for instance, formed about 35% of Buffett’s portfolio in 1960. Plus it was a small company with an illiquid stock (just 105,000 shares outstanding).
Despite these attributes that can scare any investor, Buffett saw a great opportunity and invested heavily in Sanborn. He later did the same thing with See’s Candy in the 1970s.
Let’s me be clear here. I am not suggesting that you put 30-40% of your money in any one stock or investment. However, if you really believe in an idea, you may be willing to take it to around 10-15% of your portfolio.
Too many people over-diversify – allocating the same amount of money to their best ideas as to their worst ones. But then, as they say, “Concentrate to grow your wealth and diversify to preserve it.
So while you may buy a number of stocks for your portfolio, it pays in the long run to put most of your money in your best ideas.