How to Quit High-Concentration Investing

[WayWardCloud]

13 hours ago, Kupotea said:

I am very heavily invested currently in gold miners and royalty cos. They have been on a tear this year and may be due for a pullback but you still have names trading at 30%+ FY26 fcf yields with current spot prices. I personally believe we’re in a secular bull market due to global fiscal largesse, fiscal repression, diversification away from USD assets by central banks and European pension funds. $4000 gold in 2026 is not out of the question and I could see a bit of a frenzy develop in the gold equities space as institutional managers seek to catch up to a very under-owned sector.

 

My top two picks are:

Aris Mining (jurisidiction risk being based in colombia but amazing assets at a stupid cheap valuation and i expect colombia to swing right with the federal election next year) 

Equinox Gold (poor execution has crushed investor confidence in the stock but build out of their two new tier 1 mines are almost complete and the stock is silly cheap plus liquid. You can buy jan 27 contracts at like $.70 for the $12,50 strike price while at a 1x nav or 6-8x ebitda this company should be in the $20+ price range by then)

Easiest option though is to just buy the GDX etf.

I did recently recommend Vox Royalties but i’m selling out of it due to some litigation risk.

Thanks for sharing! Commodities go straight in the too hard pile for me since I have no clue how to assess better than the market the future price of the thing being extracted. I've lost enough money on nat gas to learn this. But I can see how if you have expert knowledge it can be a very fertile ground for value investing. Curious if most of your outperformance in the past 8 years can be attributed to using options on mining stocks?

Edited June 8, 2025 by WayWardCloud

[frommi]

Develop quantitative systems using a platform like Portfolio123 and diversify across multiple strategies. This approach helps you move away from relying on high-conviction ideas—whether they’re untested or have already run their course—by gradually rebalancing into more systematic, rules-based investing.
Thats my approach. And if a big and safe idea comes along i still invest some more money into it, but never so much that i can blow up from it.

[boilermaker75]

17 hours ago, gfp said:

I'm just glad I finally got to hear someone characterize Berkshire Hathaway as "too risky" !

 

 

 

+100 

[73 Reds]

19 hours ago, Kupotea said:

I have a lot of respect for Watsa and Buffet but I’ve never been comfortable investing in financial institutions or large conglomerates. I get that you're investing in management more than the assets but I can’t hold something when I don’t feel like I don’t know all the facets of the business. Heresy around these parts i’m sure.

 

I’m confident in my investing abilities but  there’s always unforeseen edge cases that can kill you. Smarter guys than me have blown up their portfolios because they unknowingly over allocated to some fraudulent business or it turns out xyz company’s products cause cancer or whatever.

 

I’m also just not talented enough to find multiple winning investments at the same time. I get like one really good idea every couple of years and that’s actually fine but it’s too much concentration risk or conversely not enough juice if i limit that to like a 15% position.
 

Taleb has this whole (self-indulgent) book on how if you open up your portfolio to financial ruin via tail risk then mathematically it will eventually blow up. I need to do something to mitigate that.

Berkshire/Fairfax:  How many businesses compound BV at an annual rate of near 20% for decades?  

[vinod1]

30 minutes ago, 73 Reds said:

Berkshire/Fairfax:  How many businesses compound BV at an annual rate of near 20% for decades?  

 

To me in both Berkshire and Fairfax you have a few things that make concentration in these stocks less risky in addition to having fantastic business models:

 

1. Owner operators who have their entire net worth and reputation in their business.

 

2. A keen eye for risk and a worrying mentality about every sort of risk in both these CEO's and likely down the chain of command. Many other CEO's who are owner operators do not have this.

 

3. Businesses that have multiple prongs with subsidiaries that have plausible ring-fenced aspects to them. They might have correlated risks but they are very likely to survive multiple major hits.

 

4. Periods of turbulence is precisely where they shine. IV might actually compound faster during those times. Even a huge stock price drop would be taken advantage off.

 

So I am happy to concentrate in businesses with these kinds of characteristics. Berkshire does not have the upside anymore to make concentration worthwhile.

 

Also I think it is never ever possible for an outsider to know all aspects of the business. Even for a tiny company, you do not know if the CFO or CEO is up to to some mischief. So you need to look for other things like the above to be able to concentrate. And a guy like Viking to patiently hammer home the value!

 

Vinod

 

 

[Spooky]

Agree, I am more confident concentrating in diversified conglomerates. The risk of ruin is lower. If something goes wrong in one part of the business it won't kill the company.

[Kupotea]

20 hours ago, WayWardCloud said:

Thanks for sharing! Commodities go straight in the too hard pile for me since I have no clue how to assess better than the market the future price of the thing being extracted. I've lost enough money on nat gas to learn this. But I can see how if you have expert knowledge it can be a very fertile ground for value investing. Curious if most of your outperformance in the past 8 years can be attributed to using options on mining stocks?

No, this is the first time i’ve ever invested in miners. I wouldn’t suggest holding miners for the long term to be clear they’re bad businesses unless you’re agnico eagle or royalty co.
 

I usually invest in value with a catalyst, cyclical sectors on a positive inflection (which would apply in this case) or turnaround plays. Almost always there is a component of this business looks meh on historical earnings but it’s clear that the situation is improving quickly. I keep options or highly indebted companies to 15% or less of the total portfolio.

[Kupotea]

Berkshire and fairfax are great businesses, it’s just not for me. Track records are obviously important, management alignment is great, they have excellent corporate values and strategy but people said the same thing about GE. You don’t know what you don’t know until it’s too late and that’s my perspective.

[vinod1]

1 hour ago, Kupotea said:

Berkshire and fairfax are great businesses, it’s just not for me. Track records are obviously important, management alignment is great, they have excellent corporate values and strategy but people said the same thing about GE. You don’t know what you don’t know until it’s too late and that’s my perspective.

 

Every company goes bankrupt without exception. We can and should keep an eye out when things change and act accordingly.

 

Funny you mention GE, even way back in 2001 many were warning precisely about the risk that eventually blew up. It was no surprise at all.

[73 Reds]

7 hours ago, vinod1 said:

 

To me in both Berkshire and Fairfax you have a few things that make concentration in these stocks less risky in addition to having fantastic business models:

 

1. Owner operators who have their entire net worth and reputation in their business.

 

2. A keen eye for risk and a worrying mentality about every sort of risk in both these CEO's and likely down the chain of command. Many other CEO's who are owner operators do not have this.

 

3. Businesses that have multiple prongs with subsidiaries that have plausible ring-fenced aspects to them. They might have correlated risks but they are very likely to survive multiple major hits.

 

4. Periods of turbulence is precisely where they shine. IV might actually compound faster during those times. Even a huge stock price drop would be taken advantage off.

 

So I am happy to concentrate in businesses with these kinds of characteristics. Berkshire does not have the upside anymore to make concentration worthwhile.

 

Also I think it is never ever possible for an outsider to know all aspects of the business. Even for a tiny company, you do not know if the CFO or CEO is up to to some mischief. So you need to look for other things like the above to be able to concentrate. And a guy like Viking to patiently hammer home the value!

 

Vinod

 

 

Indeed, all good points.  Only pushback would be that there is probably more upside in Berkshire than one might think because of enormous optionality and the possibility [probability] that at some time in the future, shareholders will demand that value be unlocked in ways that will not happen anytime soon (breakup, dividends, sales of entire divisions, etc...).  

[Gregmal]

5 hours ago, 73 Reds said:

Indeed, all good points.  Only pushback would be that there is probably more upside in Berkshire than one might think because of enormous optionality and the possibility [probability] that at some time in the future, shareholders will demand that value be unlocked in ways that will not happen anytime soon (breakup, dividends, sales of entire divisions, etc...).  

Yea, totally. My thesis on Berkshire now pushing probably a decade, is that after a “cooling off” period following Buffetts resignation, would be the unleashing of the “80s Goldman Sachs effect”, where some of the brightest minds in the world, employed by Berkshire, get free reign to start allocating efficiently, which will be a windfall for shareholders. This will be a welcome replacement to the current “allocate responsibly” policy, which frankly, has been a turd for the last good while. Since “responsible” means “sell when things are cheap” and “make the occasional shitco bet, ala OXY” when they are dear, it should be evident we have a lot of upside if the status quo changes.

[Viking]

What is the specific problem(s) you are trying to solve for? Is the issue psychology - how you are wired? Or is the issue your investment framework - how to invest? 
 

I am a recovering concentration investor. My issue was 95% psychology. 
 

My ‘new’ investment framework is being designed to fit better with how I am wired. I started rolling it out 18 months ago. It is going well. It is a work in progress. I have also had to do some internal re-wiring… see my comment below.
 

My investment framework ‘solution’ was to put a big chunk of my portfolio into broad based index funds (XEQT and VOO). I also usually have a fairly big cash position (part of which will cover living expenses for 2 years). I still actively manage a big chunk of my portfolio. I do play with the weightings in the three buckets. 
 

—————

 

It might also be useful to look in the mirror and have a honest discussion with the person you see about why you concentrate. For lots of people it is greed - they want more. And more. The need never stops (no matter how big the pile of dough gets). I think that might be at the root of my concentration problem. If you are serious about changing how you invest you might need to slay some internal demons first. 

Edited June 9, 2025 by Viking

[Viking]

2 hours ago, Gregmal said:

Yea, totally. My thesis on Berkshire now pushing probably a decade, is that after a “cooling off” period following Buffetts resignation, would be the unleashing of the “80s Goldman Sachs effect”, where some of the brightest minds in the world, employed by Berkshire, get free reign to start allocating efficiently, which will be a windfall for shareholders. This will be a welcome replacement to the current “allocate responsibly” policy, which frankly, has been a turd for the last good while. Since “responsible” means “sell when things are cheap” and “make the occasional shitco bet, ala OXY” when they are dear, it should be evident we have a lot of upside if the status quo changes.

@Gregmal and @73 Reds , to think that Berkshire Hathaway might be better off (in terms of growth of intrinsic value) without Buffett - that is a real mind bender idea. I like it. Its not as crazy as it might sound at first.

Edited June 9, 2025 by Viking

[Cod Liver Oil]

@Viking great post on looking in the mirror and seeing a greedy bastard. @Gregmal is always excellent at inverting conventional wisdom. And as @Marco Van Basten says, thank you both for keeping my head screwed to torso. 

[vinod1]

11 hours ago, Gregmal said:

Yea, totally. My thesis on Berkshire now pushing probably a decade, is that after a “cooling off” period following Buffetts resignation, would be the unleashing of the “80s Goldman Sachs effect”, where some of the brightest minds in the world, employed by Berkshire, get free reign to start allocating efficiently, which will be a windfall for shareholders. This will be a welcome replacement to the current “allocate responsibly” policy, which frankly, has been a turd for the last good while. Since “responsible” means “sell when things are cheap” and “make the occasional shitco bet, ala OXY” when they are dear, it should be evident we have a lot of upside if the status quo changes.

 

I do agree. Buffett has been a bit too careful about his image so as not to appear ruthless and it has been a drag on Berkshire. Especially in the last 10 years, he has been a slight drag on Berkshire, either in ruthlessly reducing costs, allocating capital far too conservatively, and, in general, not driving growth in IV as hard as he would have if he were younger. 

 

Vinod

[villainx]

You can keep as is and invest your dividends into something more diversified.  It'll take longer to reduce concentration, but that wouldn't disrupt your winning strategy and have less tax consequences.

 

Or diversify with proceeds as you sell according to your plan.  Keep part to pursue your strategy and part in less correlated things, either straight low cost index, or an array of less correlated companies you have comfort and confidence in holding.

 

I'm sort of in same boat, biggest (and luck built) position is Apple, but not sure how to reduce as I want to avoid taxes.