Should You Diversify Your Portfolio or Concentrate Your Stocks?
Hi! Verniel here.
One of my favorite ways to kill time is to browse through Facebook groups or discussion forums like Quora or Pinoy Exchange.
And I noticed one thing:
When it comes to stock investing, this question is always among the most heated online debates:
“Should an investor concentrate his/her investments, or diversify?”
People actually treat this question like life or death, black or white, left or right, good and evil.
The debate is so fierce that it actually causes my blood to boil. Grrr…
Anyway, after keeping quiet I’ve decided to speak up about this issue.
But before I share my own take about this, could you please take a few seconds to like our Facebook page? Here.
Thank you.
Now, on to business:
Concentrate, or diversify?
To answer that, let me share with you two (2) of the best value investors ever:
First, we have Benjamin Graham. The father of modern investing.
The guy likes to diversify. He actually recommends that any stock investor should own at least 10 to 30 different stocks in a portfolio to achieve ‘ample diversification’.
The result? The guy became rich. That’s well-documented.
Now look at the second example. He is Benjamin Graham’s student, whose name you may know:
He is Warren Buffett.
The “oracle of Omaha”, as investors call him, prefers to concentrate his investments. In fact, each time Buffett buys a ‘company’, he spends hundreds of millions to billions of dollars on that one stock.
And then he holds on to those stocks for practically forever.
The result? Buffett has a net worth now of $102.8 Billion US dollars!
Nakakalula yan.
Anyway, we have two rich investors. One diversifies. One concentrates.
So if you ask me which one is better?
Here’s my answer:
Whether you concentrate or diversify does not matter. What matters is that you know what you are doing.
There you go.
Whatever option you choose, make sure you know what you are doing!
You need to have a clear cut reason why you want to concentrate on a particular stock, or break down your investment into several different stocks.
The problem though with 97% of all investors out there is they don’t have a single clue what they’re doing.
Sorry for saying that.
They throw spaghetti on the wall and hope it sticks.
But that could be avoided learning how to pick stocks. Knowing when to focus on a stock, or knowing when to diversify a portfolio.
There is not shortcut. Any investor who wants to profit from the market should go through it.
Speaking of learning how to pick stocks, I’ve spent two entire chapters teaching that topic in my Pinoy Power Investing digital course.
Here is the link for more info:
https://www.pinoypowerinvesting.com/course
Regards,
Verniel “Sakay Sa Issue” Cutar