Diversified versus focused approach to investing

[VestedInterest]

Basically, it's between a Peter Lynch or a Philip Fisher approach. For an amateur like me, I would prefer the former approach, a diversified portfolio. The number of stocks one holds will be a function of the amount of investable money one has and time taken to invest.

[shn]

How focused or diversified depends on each individual's personality and style. I have no clue which stocks will outperform and at what timeline. I am able to sleep well as apart from owning two properties, nearly all my money is invested in about 30 stocks with an average yield of more than 6% based on my purchased prices. Though property does not yield good rental yield, I feel safe with it and have no intention to sell them and invest more in stocks. Similarly, whether my stocks perform or not, I receive good dividend, which makes me sleep well as we'll. so, selective diversification suits me well.

[CityFarmer]

I believe the value investing philosophy is more important than the question of to diversify or not to diversify. It is really up to individual preference, time and investible money and e.t.c. There are people who has succeeded with a diversified portfolio as well:

Walter Schloss is known to always hold at least 50-100 stocks in his portfolio as he don't want to handle the stress coming from 1 particular stock. Neither will he ever talk to management as all he cares about is the financial numbers and the price he can pay for them. Since he don't care much about the business, it is easy for him to hold so many stocks. His return was 16% over 46 years compared to 10% for benchmark.

Cheah Cheng Hye of Value Partner used to go for concentrated approach, but has changed to diversified portfolio after he realised that there are just too many crooks that are great actors.

shanrui, i assume the info is from book "The value investors" by Ronald W. Chan. I am reading it now.

Yes, diversify among selected value stocks, if done right, is a feasible investment strategy.

The Walter Schloss's strategy allows him stress-free, but it comes with a cost i.e. lesser return. His return is definitely lower than WB's focus approach. Well you got what you paid, and he chose the one most suit him.

[Temperament]

i believe most of us retail or amatuer investors should have assets allocation investing. We are very very far away from where WB. is. Unless of course you are CEO in some company. Even then you only know your company.
QUOTE:-

"There’s nothing you can do better to control Risks and generate Profit by proper Allocation of Assets and buying those assets at the Right Price."

[shanrui_91]

shanrui, i assume the info is from book "The value investors" by Ronald W. Chan. I am reading it now.

you got it right, but mine is autographed by the author

the book really shows that there's so many methods and style out there that the successful value investor employs. I believe that the real superior style lies in the philosophy and emotion and not any specific method.

[VestedInterest]

Basically, it's between a Peter Lynch or a Philip Fisher approach. For an amateur like me, I would prefer the former approach, a diversified portfolio. The number of stocks one holds will be a function of the amount of investable money one has and time taken to invest.

I counted nearly 100 companies- subsidiaries and minority holdings, held by Berkshire Hathaway. So it is not true that Warren Buffett prefers a focused approach, perhaps owing to the fact that Berkshire has grown into a huge company. He may have started out 'focused' but with time and more money, became diversified. Hence, I believe if one is long enough in the stock market and invests with discipline and regularly, it is inevitable that one's portfolio will become diversified eventually.

[CityFarmer]

shanrui, i assume the info is from book "The value investors" by Ronald W. Chan. I am reading it now.

you got it right, but mine is autographed by the author

the book really shows that there's so many methods and style out there that the successful value investor employs. I believe that the real superior style lies in the philosophy and emotion and not any specific method.

I concur. Autographed in Hong Kong or Singapore?

Isn't it similar with other things in life. All road (method or style) lead to Rome (success), as long as the direction (concept) is right The difference may be just the arrival time.

[shanrui_91]

I concur. Autographed in Hong Kong or Singapore?

Isn't it similar with other things in life. All road (method or style) lead to Rome (success), as long as the direction (concept) is right The difference may be just the arrival time.

I got it signed in Singapore

[CityFarmer]

Basically, it's between a Peter Lynch or a Philip Fisher approach. For an amateur like me, I would prefer the former approach, a diversified portfolio. The number of stocks one holds will be a function of the amount of investable money one has and time taken to invest.

I counted nearly 100 companies- subsidiaries and minority holdings, held by Berkshire Hathaway. So it is not true that Warren Buffett prefers a focused approach, perhaps owing to the fact that Berkshire has grown into a huge company. He may have started out 'focused' but with time and more money, became diversified. Hence, I believe if one is long enough in the stock market and invests with discipline and regularly, it is inevitable that one's portfolio will become diversified eventually.

Focus approach should not be defined ONLY by number, but also the weight-age.

I did not count Berkshire Hathaway's holding companies and subsidiary. I assume high weight-age should be focus on just a faction of the 100.

[Temperament]

Weight-age???
As a value investor, how shall we weight-age our portfolio of stocks?
1) By capital?
2)By fundamental?
3)By value? or
4)By Combination of the 3?