An Argument against Diversification: Research Costs
Warren Buffet is someone whom I study because he says what I know to be true, but with clarity that I lack.
"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." Warren Buffet [1]
My investment style is heavy on research. I start with a large list of companies whose products I've used or heard about. I hang out with people who are interested in stocks and I hear their stock choices. I then expand the list to include their competition. Then I go through and start research each one until I find the reason not to invest in them. In the end I find a few companies that are quality companies. In any given year, I find only 2 or 3 companies that I would bet my life on, and perhaps I should narrow even that down.
Even if I worked full time on stocks, I don't believe I could find 10 quality companies at fair or discount prices. Anyone who buys a handful of companies in year either has too much time or has done too little research.
Next week, I'll switch to a different series.
[1] Quotes by Warren Buffet, Wikiquote
"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." Warren Buffet [1]
My investment style is heavy on research. I start with a large list of companies whose products I've used or heard about. I hang out with people who are interested in stocks and I hear their stock choices. I then expand the list to include their competition. Then I go through and start research each one until I find the reason not to invest in them. In the end I find a few companies that are quality companies. In any given year, I find only 2 or 3 companies that I would bet my life on, and perhaps I should narrow even that down.
Even if I worked full time on stocks, I don't believe I could find 10 quality companies at fair or discount prices. Anyone who buys a handful of companies in year either has too much time or has done too little research.
Next week, I'll switch to a different series.
[1] Quotes by Warren Buffet, Wikiquote
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