One of our favorite investing books is Poor Charlie’s Almanack by Peter Kaufman, and there’s one passage in the book in which Charlie Munger explains how he and Buffett use ‘focus investing’ to beat the market, saying:
“Our investment style has been given a name-focus investing-which implies ten holdings, not one hundred or four hundred.
The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obviously good idea. But ninety-eight percent of the investment world doesn’t think this way. It’s been good for us-and you-that we’ve done this.
What’s funny is that most big investment organizations don’t think like this. They hire lots of people, evaluate Merck vs Pfizer and every stock in the S&P 500, and think they can beat the market. You can’t do it.”
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