Jump to content

Help locating a Buffett quote


DCP
 Share

Recommended Posts

Could you try to help me locate a Buffett quote?

 

I'm having a senior moment as I try to think of something he said, perhaps in an older shareholder letter, which described how the investor who buys shares of all companies on the market is giving up their advantage. His quote is specifically about how, in intellectual pursuits, not thinking does not give one an advantage.

 

I wish I could be more specific (but then I wouldn't need to bother you with this!).  ::)

 

Thank you for your help!

Link to comment
Share on other sites

Hi DCP,

Hope this helps.

From Hagstrom The Essential Buffett p157-8

 

Buffett on Diversification Buffett's view on risk drives his diversification strategy; here too, his thinking is the polar opposite of modern portfolio theory. According to that theory, remember, the primary benefit of a broadly diversified portfolio is to mitigate the price volatility of the individual stocks. But if you are unconcerned with price volatility, as Buffett is, then you will also see portfolio diversification in a different light.

 

"The strategy we've adopted precludes our following standard diversification dogma," says Buffett. "Many pundits would therefore say the strategy must be riskier than that employed by a more conventional investor. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristics before buying into it." 12 That is, by purposely focusing on just a few select companies, you are better able to study them closely and understand their intrinsic value. The more knowledge you have about your company, the less risk you are likely to be taking. "Diversification serves as protection against ignorance," explains Buffett. "If you want to make sure that nothing bad happens to you relative to the market, you should own everything. There is nothing wrong with that. It's a perfectly sound approach for somebody who doesn't know how to analyze businesses." In many ways, modern portfolio theory protects investors who have limited knowledge and understanding of how to value a business. But that protection comes with a price. According to Buffett, "It [modern portfolio theory] will tell you how to do average. But I think almost anybody can figure out how to do average in the fifth grade." (OID)13

 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...