“Wide diversification is only required when investors do not understand what they’re doing. If you have a harem of 40 women, you never get to know any of them very well.”
“Risk can be greatly reduced by concentrating on only a few holdings.”
“Obviously, every investor will make mistakes. But by confining himself to a relatively few, easy-to-understand cases, a reasonably intelligent, informed and diligent person can judge investment risks with a useful degree of accuracy.”
How to handle risk you totally have no understanding in? “There’re all kinds of businesses that Charlie and I don’t understand, but that doesn’t cause us to stay up at night. It just means we go on to the next one, and that’s what the individual investor should do.”
“The strategy (of portfolio concentration) 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 rises, 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.”
“In stating this opinion, we define risk, using dictionary terms, as the possibility of loss or injury.”
“We think diversification, as practiced generally, makes very little sense for anyone who knows what they’re doing. Diversification serves as a protection against ignorance. If you want to make sure that nothing bad happens to you relative to the market, you should own everything. There’s nothing wrong with that. It’s a perfectly sound approach for somebody who doesn’t know how to analyze business.”
“But if you know how to value business, it’s crazy to own 50 stocks or 40 stocks or 30 stocks, probably because there aren’t that many wonderful businesses understandable to a single human being in all likelihood. To forego buying more of some super-wonderful business and instead put your money into #30 or #35 on your list of attractiveness just strikes Charlie and me as madness.”
“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you’ll find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”
“John Maynard Keynes, whose brilliance as a practicing investor matched his brilliance in thoughts, wrote a letter to a business associate, F.C. Scott, on August 15, 1934 that says it all: ‘As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence….One’s knowledge and experience are definitely limited and there’re seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”
“I put a heavy weight on certainty. If you do that, the whole idea of a risk factor doesn’t make sense to me. Risk comes from not knowing what you’re doing.”
“In our opinion, the real risk that an investor must assess is whether his aggregate after-tax receipts from an investment (including those he receives on sale) will, over his prospective holding period, give him at least as much purchasing power as he had to begin with, plus a modest rate of interest on that initial stake. Though this risk cannot be calculated with engineering precision, it can in some cases be judged with a degree of accuracy that is useful.”
“Risk can be greatly reduced by concentrating on only a few holdings.”
“Obviously, every investor will make mistakes. But by confining himself to a relatively few, easy-to-understand cases, a reasonably intelligent, informed and diligent person can judge investment risks with a useful degree of accuracy.”
How to handle risk you totally have no understanding in? “There’re all kinds of businesses that Charlie and I don’t understand, but that doesn’t cause us to stay up at night. It just means we go on to the next one, and that’s what the individual investor should do.”
“The strategy (of portfolio concentration) 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 rises, 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.”
“In stating this opinion, we define risk, using dictionary terms, as the possibility of loss or injury.”
“We think diversification, as practiced generally, makes very little sense for anyone who knows what they’re doing. Diversification serves as a protection against ignorance. If you want to make sure that nothing bad happens to you relative to the market, you should own everything. There’s nothing wrong with that. It’s a perfectly sound approach for somebody who doesn’t know how to analyze business.”
“But if you know how to value business, it’s crazy to own 50 stocks or 40 stocks or 30 stocks, probably because there aren’t that many wonderful businesses understandable to a single human being in all likelihood. To forego buying more of some super-wonderful business and instead put your money into #30 or #35 on your list of attractiveness just strikes Charlie and me as madness.”
“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you’ll find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”
“John Maynard Keynes, whose brilliance as a practicing investor matched his brilliance in thoughts, wrote a letter to a business associate, F.C. Scott, on August 15, 1934 that says it all: ‘As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence….One’s knowledge and experience are definitely limited and there’re seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”
“I put a heavy weight on certainty. If you do that, the whole idea of a risk factor doesn’t make sense to me. Risk comes from not knowing what you’re doing.”
“In our opinion, the real risk that an investor must assess is whether his aggregate after-tax receipts from an investment (including those he receives on sale) will, over his prospective holding period, give him at least as much purchasing power as he had to begin with, plus a modest rate of interest on that initial stake. Though this risk cannot be calculated with engineering precision, it can in some cases be judged with a degree of accuracy that is useful.”
1 comment:
Nice quotes collection. I like this author very much. Thanks a lot.
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