Charlie Munger, Vice President of Berkshire Hathaway and business partner of Warren Buffett, discusses diversification in a stock portfolio. Munger believes that investors should not over diversify their portfolio. He views stocks as partial ownership stakes in businesses and that a business person that owns a few businesses would be diversified in their holdings. This strategy has been used personally by Munger as the majority of his wealth is concentrated in Berkshire Hathaway stock. This original question took place in February 2019.
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Warren Buffett Reading List:
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The Warren Buffett Way – https://amzn.to/3esAApY
Common Stocks and Uncommon Profits – https://amzn.to/3hPtZb2
The Outsiders – https://amzn.to/315rZFJ
Business Adventures – https://amzn.to/2BwKKqI
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I love his humble arrogance lol. Seriously…I do and am not being funny. I love that he reinforces to me what I know about diversification…that it sucks. Back in the day I thought diversifying was having like 8 stocks. And that sounded fine and probably good but now I think diversification is idiotic as hell. I have 8 and I’ve just been adding to all 8
Berkshire is a diversified ETF
Exro technologies
Maybe you guys should have diversified your portfolios more. Particularly into tech stocks and cryptocurrency. Burkshire Hathtaway has lost shitloads of money by missing out on Microsoft and Crypto. I refuse to diversify my portfolio because crypto is the thing that will make me a millionaire. Not steadily investing in the fucking S+P.
Wow. And I thought I was weird for having just 7 securities. It's a highly volatile portfolio but it has made me a lot of money.
According to Plato, Socrates indicated there were two types of men….those fools who think they know…..and the men who know they are fools. Which one is Charley? Don't get me wrong. I admire and envy Charlie Munger very much. He has all the intellect, wisdom, confidence and temperment that have rightfully made him a huge success. Even in their wisdom, he and Warren have made some whoppingly bad calls in their career. And Berkshire Hathaway is a diversified conglomerate. I can't afford to bet the farm on 5 stocks. I will stick with a broadly diversified, low-cost index fund and content myself with whatever the market will provide. It may be "mediocre" but it beats 75% of actively managed funds.
Any idiot can diversify does not necessarily mean diversification does not have any advantage.
An idiot could also buy Kraft Heinz
maybe the title would be better if it read "An Idiot Should Diversify". No one knows
everything that's critical to the future fortunes of a company, not the insiders,
and not Munger, so I think we are all more idiot than we would like to imagine.
Diversification cuts risk, making it more tolerable to take enough risk
to make your dime. i don't believe in hyper-concentration, not for me anyway.
Definitely a genius investor
I agree 100%. I have 3 really good stocks I know really well. All I need. Don’t need advice or need to trade. Just hold as they grow over next 10 years. Sell a few shares now and then if I need some cash
Well it’s good to know that I can be an idiot, do no work, and still make money.
HE SAID PEOPLE DIVERSIFY PORTFOLIO ARE IDIOT IN BRK A AND BRKB. HOLD 46 STOCK PLUS MORE AND 200 PRIVATE COMPANY HELLOOOOOOOOOOOOOOOOOO[OOOOOOOOOOOOOOOOOOOOOOOOOOO
Ray Dalio would disagree with Munger on this one. He is very big on diversification.
The irony of his statement that he has 3 securities is that BRK and his Chinese fund both own a bunch of companies within them. On his portfolio it lists 3 things, but in reality he's exposed to well over 100 companies, if not closer to 200. His advice is sound but he certainly is diversified!
He has better information. Individuals need to diversify as we have less in depth data and not endless access to capital like he had. Do your own investing including diversification. You never know for sure. I disagree bud!
There really is no one else like munger
The intro made me laugh!
Most professionals have 50% if not more in one corporation if they understand individual opportunity enough. To have less than 20% of ones net worth in something and to diversify the rest away its a proven financial statement that the person indeed acknowledges their inability to decipher that individual opportunity. The tragedy strikes when the latter truly believes they are the former, and pick wrong. The key is patient opportunism, and to be smart. When we check if the water is cold at the beach we start with our toes and work our way in. If we dive off the cliff to avoid the slow sting of walking in, we hit the rocks below and we dont resurface.
amazing video!
Love these Munger clips
Integrity and wisdom ,doesn't cut it on main street.Thanks Charlie.
Cheers from Sydney.
One thing to note here in his comment and be careful about the interpretation is "Any idiot can diversify" implies the fund managers and fund houses can't package or sell it for a fees, saying they did something special. Diversification does have benefits but it is just so simple to do that any idiot can do it. It doesn't imply idiots tend to diversify.
Amazing video, glad you post this content. Keep it up.
Nice video!