Warren Buffett & Charlie Munger: Diversification 

Yep, but one of the first rules of the Intelligent Investor, written by Buffet's teacher, is that an investor should use his own ignorance and respect of it as his most powerful weapon. Buffet's biggest condition here is "IF you understand them", 3 businesses can get you very rich. A lot of people think they understand businesses, but extremely few actually do I think.

Patrick Noble thats why he also says 3 not one. Because maybe 2 of the 3 you were sure of doesnt work out at all like you planned, the third one should compensate for everything. But its true what warren buffet says, everyone is just sitting around impatiently waiting for warren to give them the golden answer to quick riches. Every time the man speaks, everyone listens, everyone goes silent, even the crickets. The truth is hes said the golden answer to riches many times over and over, but for most people its not the answer their looking for.

@@piratepat44 precisely what he said. But you had to chime you read Benjamin Graham’s book. Inherently he implied it, no need to elaborate, subjectively speaking.

@@piratepat44 easy. just copy all of Buffetts buys?

Wide diversification, as in investing in something you know has and/or would probably return shit

they should sell head rests below the video for all the head shaking we did :D

You're

@@SupremeCommanderBaiser your

@@Stoneface_ actually it’s you’re for “you are.” “…like [you are] in the big league.”

@@hondusspa thanks Mr professor 😁

So true. They bother us with this garbage at business schools, but it is utterly useless.

It really isn’t about how much you save, it’s about how you manage your money. Whether you work to earn income or invest, it still boils down to income vs expenses, so yeah you may look into financial advisors for a strategy that suits your timing....

i've been doing this same thing myself. Can't get into trouble with the IRS when I have no income and all my money is in stocks. I don't like doing the work though. Lol. So I just invest through an advisor who does the stock picking. My money grows, and I'm tax-free...

Do you mind sharing info on the adviser who assisted you? been saving for pension since age 18 - company scheme. along the way I hit higher tax, so I added to my company pension with a SIPP (tax benefits) I'm 46 now and would love to grow my finance more aggressively, there are a few cars I still wish to drive, a few mega holidays, etc

Have you heard of‘’Catherine Morrison Evans’’ ? She gets featured regularly on CNBC. I myself use tax-deferred accounts to hold my investments. That way I avoid capital gains taxes. There are other options your advisor could brief you about....

The advisor I use is actually quite known, you might have come across her before, “Catherine Morrison Evans” she's been featured on several articles, you can search her name

Unlike Buffett, Peter Lynch is a mutual fund manager. He was not allowed to do acquisition or buy company that is not listed on stock exchange. He was also limited by a rule that he is only allowed to buy not more than 5% shares of a company. That forced him to spread huge fund on a lot of listed companies thus highly diversify his portofolio. That is why Peter Lynch is a genius: despite limited by many rules, still he could grow the fund exponentially. Fun fact: Warren Buffett and Peter Lynch admires each other. Everybody who actually read Peter's books, study his method and read any articles about him would know that.

@@somerandomperson3970 pewpew

@@billybillson9831 can you try to read what the guy above you wrote?

Peter Lynch is forced to own that many and is limited by many rules applied to him. It is crazy to own 40 or 50 stocks especially for the average Joe. Just owning AAPL, AMZN, GOOGL, MSFT would have been very safe and rewarding strategy for the average Joe the last 10 years. Greatly outperformed all the wannabe pros with their 50 stock nonsense portfolios.

Not just that. People think of them as stock investors but they are business owners, they buy companies or shares of companies and run them, and receive dividends (some times even special dividends from agreements). If you are not a business owner that has a capacity to issue something like 30 year bonds to buy companies dont mind this

@brunomanco7529 I agree on the first one. Buffet now views investing as a conglomerate, not a mere fund manager or private investor. But I disagree on your conclusion. There are "ordinary" people, not a businessmen who successfully doing stock picking. But since your shares are not significant, you need to sell them to realize profits once the stock price hits your price target, not holding the stocks forever.

I think you’re right

@@tomd1434 Jup, but there are actually professors out there saying that if you own x amount of companies, you're bound to make money. Which is a strange idea to give young investors. Just buy index funds if you're going to be that uninformed about where you put your money. 30 bad businesses will not beat index in the long run.

I know they are the best; I just don't buy that one assertion. They have 80 companies in BRK last I heard: Apple, Burlington, Geiko,, Nebraska Furniture, Sees, Precision Cast Parts....Dairy Queen, banks, airlines...etc. Sounds diversified to me. It makes for a fun sound byte though.

I haven't looked at the percentages; you may be right. @Sanjay Khosh

True, they absolutely used to bet the farm on just a few companies, now not as much. It's a different animal out of necessity. @@Gallant972310

I would expect you are right. @@Gallant972310

@@fendermon Berkshire Hathaway is a $500+ billion company. There are no 3 great companies large enough and selling at a good price that Warren can buy and add up to $500+ billion. Those companies you mentioned were acquired over a very very very long period of time. It is quite clear the purpose was not for diversification, but because they have been so successful in generating more cash and have to acquire more good companies. Do you expect them to stop buying after 3 companies or what?

👍👍

No. It's important to retail investors.

Michael Saylor had an interesting take on this as well. In 2010 he was told by his advisors to diversify, he didn’t he focused on plowing money into Amazon Apple and I think Google. He won that bet.

It’s probably not even a good strategy for fund managers.

This adds an insane perspective

Compound interest

@@DrJetset Yes, owning only 3 stocks would be the ruin of most people who have more to do than read.

But the book intelligent investor says otherwise

@@mrshetty2019 Well, it didn't work for me. Mary Barra CEO of GM said it is impossible to know everything about GM. There are a lot of moving parts in any business. For me it seems impractical.

@@mrshetty2019 Because the strategy in the intelligent investor is about arbitrage, the net net stocks of Graham. It's essential to diversify following that strategy, but Buffett has switched to Philip Fisher and Munger later in his career because huge sums of money required a different approach.High quality cash flow generative businesses doesn't require diversification

Benjamin E. Breitenbauch buffet loves a good buffet :)

@@mehbubulalam7889 Totally agree. I have nothing but admiration for the great investment strategy talent, but there is a bad example of promoting junk food and poor helth (ethical cunundrums)

Well Warren said regarding his diet that he looked up an actuarial table and found that six year olds are the least likely to die, so he eats like one.

@@ghanditonatiuh6004 Buffett isn't promoting junk food and poor health. That is what he eats.

@@Fizban321 Lol. That's like expecting a 6 month old car fresh from the assembly line to not die either. Then looking at a 60 year old car. Well that fuckers rusting everywhere you can see and then some and also falling to bits every 5 seconds if it's not taken care of correctly. P.S. Go to a finance person for financial stuff, go to a health person for health stuff is also another thing to add to my comment.

#Liverpool FC

Because shoving stupid amounts of money in Apple seemingly made more sense and is literally the thing thats pushing their stock price up.

If Warren continually reinvested Coca Cola's dividend back into the Cola Stock then he would own more than 10% of the company and this would create all sorts of 'red tape' with regards the SEC which Warren doesn't want. By holding Coca Cola so long he can continually look for value stocks and compounding can work even harder.

@@abitamimbharmal1498 Not just Apple. BNSF was bought for about $38 billion about 10 years ago. In the last Berkshire meeting Warren intimated that the holding is now worth slightly more than Union Pacific stock (regarded as being of similar size to BNSF). Union Pacific stock had a Market Cap of $152 billion as of Feb 2022. If my calculations are correct that means BNSF has increased by over 4 fold in a decade.

A company that pays out most/all of their free cash flow as dividends of course may not be able to sustain the payout indefinitely and lack of capex could harm future earnings. On the other hand, Coke a Cola generated so much earnings and free cash flow over the years, they could pay out some of that to shareholders, growing this over time, while also buying back shares, AND reinvesting in themselves. Berkshire now earns about 50% pa. on it's Coke a Cola cost basis in dividends alone so it's not surprising they don't buy more nor sell buy simply hold.

@@ErinP123 I’m fairly certain that he hasn’t said anything about never buying another share. If the stock would fall 90% it would be foolish not to buy.

The prices finally dropped time to buy 😂

Well the bigger the risk, the bigger the reward and such impeccable decisions are better guided by professionals.

Very true. Despite having no prior investing knowledge, I started investing before the pandemic and pulled in a profit of approximately $950k that same year. In reality, all I was doing was getting professional advice.

That’s impressive, have you always had a financial advisor?

My consultant is Nicole Desiree Simon She has since provide entry and exit points on the securities I focus on. You can look her up online if you care for supervision.

I just checked her up online, and I must admit that she has an extremely outstanding experience in investment. Thanks for sharing. I'm going to send her an email right away

Is that why they invest only in USA ?

Because for most of us diversification works, government bonds for example still appear to go up when stocks crash just look back to March. So it doesn't matter so much what the different asset classes are doing on average its how they react in market downturns. Active fund managers and the industry don't want people to follow the passive strategy and use index funds, buy and hold, just have maybe 2 or just a few low cost well diversified index funds and stay the course. The reason being is that active managers , financial advisors and the investment industry are making loads of money out of us instead of making us richer

Because they don't teach how to analyse business 😂😂

@@fredatlas4396 Bullcrap. Owning a few great companies is much better than nonsense index funds. Sheep are just lead to believe they're much safer with index fund. Owning something like Apple has been very safe and much more rewarding than the overall market. In fact you could say index funds are kind of overvalued, since they include all sort of trash companies there. Index funds are not very efficient at all... And that doesn't mean I advocate active funds either. Just buy and hold dominant companies in growing industries.

That might be because Buffet and Munger don't control the company, they are mainly the founders and powerful board members, but I suspect there are some other powerful board members and shareholders that are in more favor of diversification

It is because of their huge size. Buffett explains that in other tube videos. Early on Berkshire was very focussed gradually diversifying.

Well, if you’re 100% confident about an investment that’s the right thing to do. But you’re most likely not.

4 instead

No one should be investing into only one business. Buffet just said to find 3.

Me too😁 highly confident in my investment📈

That's not how it works, pal. It's whether you know or you don't know. There's no such thing. If you don't know, it means you don't know. Those companies fail because a massive part of those companies are unstable. If you don't know about those massive parts of the companies , you don't know the companies. You have a piece of paper, only reading 20% of what's on the paper doesn't mean you have read the paper, pal. You need to read all of them, or at least, the important parts. Go learn some math

@@markarmage3776 Last time I checked, there was one guy who figured out Madoff was a Ponzi scheme. One. And, there was nobody who thought that Enron was in trouble while the stock price kept going up up up. And, Worldcom wasn't showing signs off issues until well into its collapse. And the people who were neck deep in those companies had no idea, either. Remember when Sarbennes-Oxley was put into place? That was BECAUSE of the fraudulent accounting practices that gave us those three. The scope and depth of the information that has to be provided now is beyond the knowledge of a lay investor. If you're not a pro, you DON'T know. You CAN'T know. FFS, the entire BANKING SYSTEM didn't know what it was doing in 2008. It damned near destroyed capitalism because nobody could figure out that there was a bubble. As for "the important parts," have fun describing what those actually are. And then try to do it without an accounting degree. Because, when even the experts don't know what the fuck they're doing, the rest of us are basically sheep being led to the slaughter.

I think Buffett may be referring to the fact that Bogle provided a way for the average person to invest in the stock market. Not everyone will have the aptitude, time or interest to learn everything you need to understand in order to invest the way Buffett and Munger invest. Their method requires deep knowledge of business analysis to invest in "wonderful businesses", so it's not for everyone. To each their calling and gifts. Depends on how you want to spend your days on this earth!

Is it a good tactic ?

Check out this idiots diversified portfolio lol Buffet is right en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshire_Hathaway

It depends, he's 28 in this video

''I have only one stock...'' yeah but it's composed of hundreds of differents holdings ...

u dont have berkshire money either when u have 600 billion its a different game

then he said on a personal basis he has one stock

Buffett himself says that money bequeathed to his wife at his death will just be put 90% in SP500 and 10% TIPS

Don't try to cap on Buffett's words. He said what he said. Cope.

You're a fucking peasant.

But buying Berkshire you would have beat the market and basically every single tech stock that would boom for the next half decade after this speech

@BullShark this is in 1996, if you bought BRK the night of this speech you beat the market with it through today.

They bought Coke in 1988. Even buying it in 1996 you're factoring out stability and growing dividends

That makes you just as smart at the guy that knows exactly what he's doing with 3 wonderful businesses

Book value my man

@@xdman20005 Jup, they have a lot of cash, and spend it timely. They're up +46% from 2020-present

Most people are in fact, completely in the dark when it comes to stock trading or investing. Warren mentions the fact that all these theories about diversification is only going to get you to the same level as your "average Joe" in terms of portfolio performance. As for bonds or other assets, he did not mention anything. I couldn't answer you either as the only asset class I trade are stocks because that is what i absolutely love. Diversifying is greatly encouraged by the financial media platforms especially for your everyday average Joe with low risk tolerance. However, the media is also known to be the best contrarian indicator when it comes to information & accuracy. I suggest you go read Jesse Stine & Mark Minervini's work. You are going to notice that most if not all of the most successful stock investors don't diversify. Why? We'll take 2 scenarios : Let's say you find an absolute beast of a stock (both from a technical analysis & fundamental perspective). Scenario A : You risk 1000$ on that one stock. Scenario B : You actually find what you think are 5 stocks, all of them with massive growth potential. A : you make 10% return on that 1 stock. B : You risk 200$ on each of the 5 stocks. You make 10% return on every single one of them. In theory, you made the exact same return (in total) for each scenario. Here's the problem, believe me when i say, it will be a massive challenge and countless hours of research to find that one potential giant of a stock, let alone 5 of them. Even worse, your chances of making a great return on all of them is probably not in your favor unless you are a world class investor with massive experience. I do believe it is absolutely possible, but I know it takes massive amounts of time and passion. Most people lack that. That is also why I do not believe in diversification. If you invest a million dollars at once in a low cost index fund, and are able to make a fixed annual return of 8, 9 or even 10%, you are blessed with insane amounts of passive income. But you & I both know there is no "fixed" return & finding a fund with that consistant of a return is close to impossible as past results are not indicative of future performance. It continuously fluctuates. Plus, I am one of those individuals who can find great Joy in isolating myself behind my computer, researching & analysing data. But I am not an expert in any shape or form. I simply am fascinated by the dynamics of stocks.

@@scoobydoo3322 Thank you so much for your comment. First of all, when you said read for jesse stine and mark minervini did you mean books? Or what is it exactly I can read for them? I am trying to read all these important books so I can start stock trading (I only been studying it by reading haven't traded yet). Books like dhando investor by mohnish pabrai, warren buffet way, benjamin graham the intelligent investor, guy spier the education of value investing and there are more I recently bought for charlie munger and others.. Anyway about diversification.. not all but most of the books I read said that diversification is good to make sure you don't lose all your money.. and I think even Warren invested in bonds and index funds. Infact when he dies lots of his money will still be in index funds. I understand exactly what you mean by its easier to focus on a smaller number of funds but what do you think about when the market crashes? Would you still go with few stocks or would you diversify your portfolio?

@@ameensh2439 You have great questions. But answering them in details would take days XD I'll try my best. First, You can read Jesse Stine's "Insider Buy Superstocks". I absolutely love this book as Jesse focuses on having a "contrarian" mentality. He emphasizes the importance to think on your own and use the general sentiment of retail, financial media and smart money to help him make decisions. His book is raw. He talks about everything from insider and institutional activity and how they influence the movement of the market and he includes actual charts from his older trades to tell you how he thinks and why. Why he bought the stock, why he sold it and all the criteria he used to pick those stocks. Of course, I do not agree with all of it, but I can say with total confidence that the majority of his book is an absolute Gem! Although his book is better suited for more advanced investors than total beginners. Getting familiar with the terminology is probably the first thing you should do. Every time I read or heard a word I didn't know I googled it, sometimes even 3 or 4 times when I forget some definitions. I still have everything to learn. It never stops. Second, "diversification is good to make sure you don't lose all your money". I don't agree with this at all. The reality is, you are going to lose money whether you want it or not. It is a fact. There has never been a trader or an investor with 100% win ratio and no loses. It is just not possible because the stock market goes against human psychological traits such as greed, fear, hesitation, doubt, positive/negative response to an event & a multitude of others. That is why it is one of the most challenging game to master. It will show you your true colors. All your worst personality traits will come out and unless you learn to deal with them, it will be close to impossible to make money. But believe me, I am not trying to discourage you. If you truly have passion for it, continue exploring and lose yourself in the learning process. When you have sufficient capital, then make a plan and go from there. I realize this is a little bit vague but detailing everything would take forever XD. Step by step. Third, Even if you have never traded before, I suggest you start practicing and observing price action for different stocks as well as patterns. Patterns always repeat themselves over and over again and the more screen time you have, the better you get. This is not a one week thing neither is it a month worth of study. It takes years. But focus on day to day and have fun. Fourth, Whether the market crashes or not, it does not matter. What matters is how you react and what you do. you can sit on the side and wait for an opportunity or not do anything at all. easier said than done of course. However, you should know that some stocks completely ignore the direction of the overall market. They explode with momentum for various reasons even during a bear market. They are hard to find but I believe good stocks are a rare breed anyways. And by good stocks, I am not talking 10 or 20% in a year, I mean 100, 200, 500 or even 1000% in a few months. I personally trade low float NASDAQ stocks but they are risky. That is also the reason I love them. They are chaotic, they are manipulated and they are influenced by shady institutional and insider activity. That's what I love. That is also the reason a lot of people shy away from them. To each their own. For most people (who have no clue how to invest or trade) 5% a year on a 5000$ principle for 30 years is good enough as a return. But for me and others out there, 5% is a disgusting return especially when your mindset has changed and you always want to improve. And diversifying is simply not suited for people to make fortunes unless you start with a massive amount of capital (1 million+). The problem with diversification is that people do it because they don't wanna take the time to study the market. So they leave it to a stock broker or any another professional entity to be responsible for their personal portfolio. But the general population has access to the same stocks that these "professionals" do. Most people have no interest in the market. "It is gambling", "it is stupid", "It is a waste of money" and so on. Those statements are made out of ignorance or bad experiences. But it also leaves you clueless and completely weak in the face of individuals who, most of the time, do NOT have your best interests at heart. I found out the hard way. Finding people that can actually teach you and do it out of love for the craft is hard to find. I have yet to find that person. But if you are like me and you love it, early on you realize the importance of managing your own capital, but more specifically keeping it and growing it. That also takes years. But such is the reality and also the beauty of the stock market.

The short answer is that the "average" investor isn't someone like you. If you average per dollar invested, the average investor is a big bank with dozens of analysts. You're likely not gonna beat them unless you're that big yourself. Hence Warren's advice to be average, unless you have the resources.

@@scoobydoo3322 Thank you for taking your time to answer my questions. I am very surprised that I never even heard of Jesse Stine! He literally produced a 14,972% returns within 28 months! That's outstanding!! I've never heard of such increase. I am reading about him and I put his book on to buy list I will read soon about the other guy you mentioned and see what he offers if he has any books. It actually makes lots of sense that if you have a capital of 1M+ as you said you counts diversify. As for small capitals it doesnt make sense. In fact I always thought, lets say I open up an account with $1000 how much am I supposed to put in index funds and bonds and how much in stocks? I used to be confused as it doesn't make sense to do so since my capital is so small. I actually been thinking about starting to trade the only problem with starting and basically what's stopping me are few things. 1) I need to find a good broker (not someone to invest for me) I mean more like a platform to use to invest and for that you have to look into a lot of things like fees and etc.. 2) The different types of stocks like you mentioned you like NASDAQ. See those confuse me because I need to understand what NASDAQ is and there are I believe ETA or w.e and so many more.. so I dont even know where to start haha that's why I'm still researching.

Japan Trades👀

🙆‍♀️👌🏌️‍♂️

Diversified in financials

They only have dozens of stocks, where other funds have hundreds

fendermon they have been killing every total market index for the last 50years.

@@hannesproductions4302 But Buffett recommends owning index funds

I fully agree. They are in a class of one. @@hannesproductions4302

en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshire_Hathaway

His only stock as he put it is Berkshire which he is a major shareholder of...

@@DenzelLN936 yes I realized that after I posted this message haha

But it's true he's said Berkshire has held coca cola for many yrs, if you had enough savings you could have seen Buffet saying on many occasions what a wonderful company coca cola is and then waited patiently, maybe brought some and waited for the times when the stock went down significantly and topped up your holding over many yrs. But Warren says his holding period is forever, and most people may want or need to take some of that money

WHAT??? 🤷🏻‍♂️🤦🏻‍♂️

XD

@@dschafar6679 Check out this idiots diversified portfolio lol Buffet is right en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshire_Hathaway 🤣🤣🤣

Bad question, it's good companies which should remain good over the decades that should be the question.

@@gabrielnadar5985 Bad response. Pay off debt you slave.

@@MrYega-zq7rz idiot ask your country pay their debt, you citizens of slave country.

Tesla

You are doomed if u have tesla

Overvalued. Think Wells Fargo or BOA

Then, Im ok with being doomed.

@@sathyapranesh788 Not doomed if you believe in what Elon Musk is all about. I'm really excited about owning a part of Tesla and I'm in it for the long haul. I bought more when the market went down in mid March.

Not really, look at their top 5 holdings, close to 50% of their wealth is in them (of the securities portfolio).

You don't diversify for diversification's sake. Diversification is an effect of analyzing a bunch of companies and listing down the best ones. Simply, you don't put a specific number of companies to invest, It just "happens" gradually as you analyze and find great companies.

There's only so much businesses you can invest in

BRK.A, B is the junk created to prevent hucksters from sullying the firm's reputation.

If they diversified early on they would not be as big as they are now. They were very focused early on gradually deversifying because of their size. Buffett admits that in other tube videos.

True True. Even in his partnership era, he indirectly said that he could invest in ~30 companies. Although, he used 3-4 strategies during that time. Buffett has done a good number of bad/meh investments that he doesn't talk about. Some of the more meh ones are Kaiser Aluminum, General Foods, R.J. Reynolds, Crum & Forster, Northwest Industries, Exxon (1980s), Beatrice Companies, Lear Siegler, McDonald's (1990s), Anheuser-Busch, Walmart (mid-2000s till sold), Johnson (mid-2000s till sold), Conoco Phillips, USG Corp, and US Bancorp. Some of the downright terrible ones are Aluminum Company, GATX Corporation (he probably lost around ~20% in this), Guinness PLC (probably almost a 20% loss), PNC Bank Corporation (also probably almost a 20% loss), and Tesco. I exclude the Sinclair Service Station one since, AFAIK, competent investors made that sort of mistake when they're young: They got lucky, overly confident in themselves, make one big mistake, reflect, become "great". Ray Dalio said something like this, I think.

Actions speak louder than words is right.

if you dig more of his videos on youtube, he clearly explained the reason why Berkshire own stake in over that many companies...and the reason is clearly not diversification.

@@stijnblom1 Time to buy sport cars then! 😂🤣😅

Its because they have so much money that it cannot all be reinvested with good returns, besides they believe in a slow continuous investment over throwing lots of money in at once like a gambler.

aaaand once again now we see buffett’s method has merits...but every so often people come and think the world has changed and it’s all upside down now and you can buy non-productive “assets” like bitcoin and gold and cash flows don’t matter...