The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.
Interpretation
Warren Buffett advocates for a concentrated investment strategy rather than broad diversification, arguing it can reduce risk through deeper understanding of businesses.
In this quote, Warren Buffett articulates his belief that a concentrated investment approach, which goes against conventional wisdom of broad diversification, can lead to lesser risk. He suggests that by focusing intently on fewer investments, an investor can gain a better understanding of those businesses, which ultimately provides greater confidence in their economic fundamentals and reduces uncertainty in portfolio management.
In practice
In a financial seminar discussing investment strategies.
I have no views as to where it will be, but the one thing I can tell you is it won't do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot - and it's a lot - it's a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.
If the world couldn't see your results, would you rather be thought of as the world's greatest investor but in reality have the world's worst record? Or be thought of as the world's worst investor when you were actually the best?
Cash never makes us happy, but it's better to have the money burning a hole in Berkshire's pocket than resting comfortably in someone else's.
I think you should read everything you can. In my case, by the age of 10, I'd read every book in the Omaha public library about investing, some twice. _x000D_ You need to fill your mind with various competing thoughts and decide which make sense.
The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
One’s objective should be to get it right, get it quick, get it out and get it over. Your problem won’t improve with age.
There's quite a bit of evidence that even professionals don't show any ability to pick stocks or to predict market rollbacks. Most of the people we identify as skilled based on returns have probably just been lucky.
Most investors would be better off in an index fund.
Everybody thinks that they're going to time the market, they're going to sharpshoot the market, and buy right at the bottom. The truth of the matter is that nobody is good at it.
Everyone has the idea of owning good companies. The problem is that they have high prices in relations to assets and earnings, and that takes all of the fun out of the game.
You shouldn't just pick a stock - you should do your homework.
When an investor focuses on short-term investments, he or she is observing the variability of the portfolio, not the returns - in short, being fooled by randomness.
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