Warren Buffett: Why we don't diversify ☝️ Charlie Munger: Diversification is for amateurs 🤷

THIS IS EVERYTHING WARREN BUFFETT AND CHARLIE MUNGER HAVE SAID ABOUT DIVERSIFICATION IN ALL BERKSHIRE HATHAWAY MEETINGS EVER.

Although Warren Buffett and Charlie Munger recommend amateur investors to diversify their stocks into an S&P 500 index fund, they clearly state in this video that they have never diversified themselves and do not intend to do so in the future.

Here are their key points:

All we want to be in is businesses that we understand, run by people that we like, and priced attractively compared to the future prospects.

We — 80 percent of Coca-Cola’s earnings, roughly, will come from outside the United States.

But, we don’t make any specific — we don’t think in terms of, I like this region so I want to be there or something of a sort.
It’s something that’s specific to the companies we’re looking at, then we’ll try to evaluate that.

We like to put a lot of money in things that we feel strongly about. And that gets back to the diversification question.

You know, we think diversification is — as practiced generally — makes very little sense for anyone that knows what they’re doing.

Diversification is a protection against ignorance.

It’s crazy to own 50 stocks or 40 stocks or 30 stocks, probably, because there aren’t that many wonderful businesses.

On a personal portfolio basis — you know, I own one stock. But it’s a business I know. And it leaves me very comfortable.

So you know, do I need to own 28 stocks, you know, to have proper diversification, you know? It’d be nonsense.

But three wonderful businesses is more than you need in this life to do very well.

And there aren’t 50 Coca-Colas. You know, there aren’t 20. If there were, it’d be fine. We could all go out and diversify like crazy among that group and get results that would be equal to owning the really wonderful one.
But you’re not going to find it. And the truth is, you don’t need it. I mean, if you had — a really wonderful business is very well protected against the vicissitudes of the economy over time and the competition.

CHARLIE MUNGER: Yeah, what he’s saying is that much of what is taught in modern corporate finance courses is twaddle

You cannot believe this stuff. I mean, it’s modern portfolio theory

If you find three wonderful businesses in your life, you’ll get very rich.

CHARLIE MUNGER: If you believed what Warren said, you could teach the whole course in about a week

You don’t have to be right on 20 percent of the companies in the world or 10 percent of the companies in the world or 5 percent. You only have to get one good idea every year or two.

The idea that very smart people with investment skills should have hugely diversified portfolios is madness. It’s a very conventional madness. And it’s taught in all the business schools. But they’re wrong.

You will occasionally see something that you should load up on. And, as Charlie says, that’s what you really have to do. I mean, some of the people in this room loaded up on Berkshire many years ago. And the truth was, they didn’t need diversification, you know. I loaded up on it. Charlie did. And you’ll see opportunities occasionally but you’re not going to see them every day or every week.

If you think you’re going to see an opportunity every week, you’re going to lose a lot of money

If you have a good business in this country earning money in dollars, you’ll do ok.

In this sense, we’re totally out of step with modern investment management, but we think they’re wrong.

Charlie and I have been confident enough — if we were only running our own net worth — I’m certain a very significant number of times, if you go over 50 years, there have been a lot of times when you would have put at least 75 percent of your net worth into an idea. Wouldn’t there, Charlie?

CHARLIE MUNGER: Warren, there have been times in my life when I’ve had more than a hundred percent of my net worth invested in things.

Several times I had 75 percent of my net worth in one situation.

If you’re working with smaller sums — it would be a mistake not to have half your net worth in.

There will be some extraordinary things happen in a lifetime where you can put 75 percent of your net worth or something like that in a given situation.

The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple.

Diversification is for the know-nothing investor; it’s not for the professional.

A know-nothing investor will get decent results as long as they know they’re a know-nothing investor.

Diversification is crazy for somebody that really knows what they’re doing.

We try to load up on things.

I like this buy and hold investing. It’s a lovely way to live a life and you deal with a better class of people, and it’s worked pretty well for all of us.

The idea of buying an index fund over time is not to buy stocks at the right time or the right stocks. It’s to avoid buying them at the wrong time, the wrong stocks.

I don’t own any indexes.