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In 1989, Peter Lynch coined the phrase, “diworsification” to describe the perils of being too diversified

And in 1996 Warren Buffett said, “Diversification is protection against ignorance. “

So you might think a very concentrated portfolio is the answer to wealth creation?

It is, if you can accurately predict the future

But you can’t

So I asked Perpexity, how many companies Peter Lynch held on average

“the average number of holdings was around 200 stocks in the portfolio, and at its peak in 1989 it reportedly reached about 1,400 holdings”

I bet you weren’t expecting 200

So then I asked

“How has the total number of investments Berkshire Hathaway owned, changed over the years?”

“In the late 1970s and 1980s, Berkshire’s investments were essentially a few dozen material positions overall

By the early 2020s, Berkshire had grown into a conglomerate with of the order of 60–70 majority‑owned subsidiaries spanning insurance, railroads, energy, manufacturing, and retailing to well over 100 distinct business and stock investments today.”

so a few dozen to 100 across many industries

And how about UK investing legend, Anthony Bolton?

“Bolton’s style across his major funds was to hold roughly 40–100 stocks at a time”

My conclusion is that we know about these investing legends because of their great returns and because they survived in the markets over long periods of time, giving compounding time to work. Part of that “survival” is being diversified

I’m in good company because

In a 2019 a Morningstar paper studying the impact of portfolio concentration on returns, the author, Alex Bryan, CFA, concluded,

“The idea that investing with conviction improves returns is a myth. Increasing portfolio concentration is just as likely to hurt returns as it is to help.”

Over the past 12 months, some big holdings in some big funds have taken big hits:

– Novo Nordisk is down 54%,
– RELX is down 47%,
– LSEG is down 26%,

So maybe it’s time to reconsider the common notion that “high conviction investing” is the answer

In our January factsheet (comments), we make our case for a more diversified portfolio

Especially in a fast-changing world

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Disclosure

Ranmore Global Equity Fund has no position in the securities mentioned

This is not advice, do your own work

The content of this marketing material is provided for information purposes only. It does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase, shares, units of other interests in investments referred to herein. Past performance does not predict future returns. Capital is at risk. Ranmore Global Equity Fund plc has not been registered under any United States securities laws and may not be directly or indirectly offered or sold in the USA or any of its territories or possessions or areas subject to its jurisdiction or to or for the benefit of a US Person.

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