In this interview with Reuters, Bill Ackman provides some great insights into why investors should remain concentrated and not diversify. Here’s an excerpt from that interview:
I’ve always had the view that why not own the best ten or eleven investments as opposed to ideas twelve through twenty five, or twelve through one hundred, which is more typical.
I think there are very few great investments at any one time. So the ability to concentrate is an enormously valuable asset of a strategy. The problem with it is it leads to bumpier returns and it leads to more attention on mistakes, or things that aren’t going well.
I don’t know a portfolio manager that doesn’t have a stock that’s down in his portfolio right but you don’t read articles about… I mean we’re getting an awful lot of attention for a pretty high profile situation that’s struggling but I think there’s… it depends on what your business model is.
If you want to make high rates return over a long period of time it’s hard to do that being very diversified. I mean if you look through the Forbes 400 wealthiest people in the world most of them made their fortune in one business or a portfolio of two businesses. Very few made it in a portfolio of a hundred.
You can watch the interview here:
https://youtu.be/CYGis8o0KCo
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