Putting 100% Of Your Net Worth Into One Position

During their recent episode, Taylor, Carlisle, and Doug Ott discussed Putting 100% Of Your Net Worth Into One Position. Here’s an excerpt from the episode:

Tobias: What sort of concentration? How many names?

Doug: So, I think we’re about 18, 19 now, which is a little higher than average. But if you’re looking at the top five equity positions, those definitely combined make up more than 50% of that equity allocation. Probably upwards of 60%, 65% the top five.

Tobias: Because they’ve grown to that level or because you sized them?

Doug: I think it’s both. We have names that are 15% of the equity allocation of an account. Definitely, most of them did not start that way. They may have started 10% or 11% and grown into that 15%, 16%. It’s hard. In my 10 plus years of experience now, it’s rarely a good idea, even if you’re a self-described, concentrated investor to start out so high as 15%, there’s not much room for error. So, it makes sense, I think, to start a little bit less concentrated. 10%, 11% might be the highest I’m willing to go nowadays, initially.

Tobias: We were talking just before we came on about Buffett doing 40%. He can do that, because he’s got flows that quickly water down the 40% when he puts it on.

Doug: Right. But do we know or remember if he did that initially in the partnership days?

Tobias: I think he was pretty concentrated. I think he would have like three positions potentially. And they were like net-nets.

Doug: Yeah. I think it would make it easier if you, me, Jake knew we had millions of dollars coming in every year. We could afford to started off at a larger position.

Tobias: You might have to, just because you’re getting diluted all the time.

Doug: Yeah.

Jake: Munger said at one of the meetings. They were talking about like, what’s the most you’ve ever had in any one position? [Doug laughs] And he said, “Warren, there have been times when I’ve had more than 100% of my net worth in a single name.”

Doug: Yeah. Do you remember the story? I think there was an arbitrage situation that Munger went to the– going to the bank to take out loans to increase whatever that merger arbitrage situation was. That shows how extreme lengths he was willing to go on a sure thing.

Tobias: I don’t think Kelly gets you to more than 100% ever.

[laughter]

Tobias: I think Kelly is definitionally limited to 100%.

Jake: You got a dream a little bigger, darling.

Tobias: Kelly’s 100% at certainty. I don’t know what you get beyond certainty that– Maybe there is some mathematical answer to that, I don’t know.

Jake: Oh. [laughs]

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