During this interview with the Helvetian Investment Club, Mohnish Pabrai explained why it’s ok to end up with 80%-90% of your net worth in one stock. Here’s an excerpt from the interview:
Pabrai: One of the things I always kind of scratch my head about is that these very smart investors would buy MasterCard after the IPO, and they might be more diversified than me. They might have 20 positions, which is fine no problem.
And so MasterCard is like a five percent position and then it does really well and it becomes a 25% position or a 30% position because it’s done so much better than everything else.
And like Jack Nicholson said – they can’t handle the truth. And in some cases their grandmothers took away certain body parts when they were 13. And so they’ve done well. It gets to 15% and they trim. It gets to 17 they trim again, and it never gets to even 20 percent right.
And so to me I really scratched my head about that. So yes you get a diversified portfolio but you’re cutting the flowers and watering the weeds and that’s not what Rakesh Jhunjhunwala did and that’s not what Warren Buffett did.
So I think if an investment manager has done the job right they’re going to end up with 80, 90 percent of the net worth in one stock.
You can watch the entire discussion here:
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