Last week, we had a monthly Q&A call with members of our Gemini Masterclass.
It’s something we do once a month, and it’s a great time for us to go deeper into specific topics and answer all the questions we receive from our members.
One of the questions we received this month had to do with diversification.
To answer that question, I shared with our members one of the most profound pieces of advice Warren Buffett has shared with us throughout the years, and that I want to share that with you today.
Imagine that you had a punch card. This can be an old data punch card for computers or a subway ticket – it doesn’t matter.
But imagine that the punch card had just twenty holes in it – no more than that.
Every hole on the punch card represents ONE investment you can make in your life.
Every time you make an investment, you punch a hole. But after you’ve made twenty investments, you can no longer make any investments for the rest of your life.
Warren Buffett says that when you think about your investments as being limited to just twenty in your entire life – you will think about them a lot more than if you could buy as many as you want.
In fact, you’d likely spend months thinking about an investment, and analyzing it, before pulling the trigger.
Because you’d spend so much more time thinking about your investment and making sure it’s right for you, you’d undoubtedly become a much better investor.
You’d make better decisions, and you’d make a lot fewer ones. You wouldn’t diversify for the sake of it, but instead, concentrate on acquiring very high-quality businesses that you could own for the long-term, and double-down whenever a good opportunity came along.
A lot of people look at Warren Buffett today and see that he owns a lot of different stocks. But 70% of his portfolio is concentrated in just 5 stocks.
These are extremely high-quality businesses that he’s owned for decades like Coca-Cola, which he has owned since 1988.
Today, Warren Buffett is limited in what he can buy because he has too much money.
It’s a good problem to have for most people. But he’s said himself that the biggest drag on his performance is the size of his portfolio.
If Warren Buffett wants to buy a new stock, he’s limited to some of the largest, most liquid companies in the United States.
And that’s somewhat of a problem – because smaller companies historically have better returns.
It’s impractical for him to invest $5 million into a smaller, but extremely high-quality businesses that generate the kinds of returns he’s looking for, because it just wouldn’t move the needle enough.
A few million won’t make any difference to him.
To you and I, however, they can make a big difference.
We are not limited to buying only into businesses worth tens of billions or more.
We can buy the stocks of companies that are much smaller yet produce the kinds of returns Warren Buffett built his career on.
And we can buy them anywhere in the world. We are not limited in geography, because the world has changed.
Our brokerage accounts allow us to buy stocks anywhere in the world.
As an investor, that means incredible opportunity if you know exactly what to look for.
That expertise is exactly what I’ve spent the last decade acquiring. I’ve bought public stocks and private businesses in all corners of the world – from Australia to Chile, Colombia, Hong Kong, Uzbekistan, parts of Europe, and the United States.
I often concentrate my capital heavily and I don’t diversify for the sake of it – because I know what I’m doing.
Getting boots on the ground and finding the best businesses to invest in is what I spend most of my time doing today.
I'd love to have you along on the journey.