Overdiversification Question

[Ver]

How much you concentrate depends on how much of the company's future cash flows you understand, and then how attractive the opportunity is. The decision starts from how much you understand, not how much you should diversify. The former dictates the latter, but many people mistakenly think from the other direction. Finding a good company at a good price is not done by diversifying attention.

 

The amount one concentrates depends on the opportunity set one can understand, which fluctuates. Concentration levels therefore naturally should change depending on availability and degree of opportunities.

 

Personally I've held between 2 - 8 companies. Currently 3. My major mistakes were diversifying attention and by omission missing better opportunities in 2022 and Pop Mart in early 2024. 

 

 

[UK]

15 hours ago, villainx said:

I feel like you want to say 6 7, but don't want to perpetuate that meme.

 

=P

 

LOL, lets adapt this meaningless thing for a COBF diversification definition:))

 

Edited January 15 by UK

[UK]

12 hours ago, whatstheofficerproblem said:

To invert this, how little is too little? 90% of my portfolio is in one stock with the remaining 10% in the LEAPS for same name. Am I underdiversified?

 

This is ERICOPOLLY level stuff, I am afraid I would sleep like the baby from that joke, with such diversification:)

 

Edited January 15 by UK

[UK]

11 hours ago, sholland said:

“With each investment you make, you should have the courage and the conviction to place at least ten percent of your net worth in that stock.” - Warren Buffett 

 

If you are not willing to put at least 10% into an idea then the margin of safety is too narrow.  That philosophy means a maximum of 10 stocks.

+1

[Milu]

18 minutes ago, UK said:

+1

I follow something similar, I am confident enough in my buying skills to be comfortable putting a max 10% at initial cost. After that though I will let winners run to whatever percentages they want.

 

Doing a max of 10% allows me for a large enough commitment to move the needle, but that also in a worst case scenario if I was completely wrong and the company went bust, I’d handle losing 10% of the portfolio. Has never happened but I like the feeling of a capped downside of 10% on each new position.

[UK]

4 hours ago, Milu said:

I follow something similar, I am confident enough in my buying skills to be comfortable putting a max 10% at initial cost. After that though I will let winners run to whatever percentages they want.

 

Doing a max of 10% allows me for a large enough commitment to move the needle, but that also in a worst case scenario if I was completely wrong and the company went bust, I’d handle losing 10% of the portfolio. Has never happened but I like the feeling of a capped downside of 10% on each new position.

+1

[whatstheofficerproblem]

6 hours ago, UK said:

This is ERICOPOLLY level stuff, I am afraid I would sleep like the baby from that joke, with such diversification:)

 

 

Ericopoly hasn't been as active these days. Please tell us about his exploits.

[UK]

23 minutes ago, whatstheofficerproblem said:

 

Ericopoly hasn't been as active these days. Please tell us about his exploits.

 

Well who am I to tell about this, but I think he made some history here on COBF with his conviction on BAC at the time and by trading its warrants/options:). I just managed to follow him/WB/BB with a mediocre ~10-20 position in common:)

 

Edited January 15 by UK

[Gregmal]

6 hours ago, Milu said:

I follow something similar, I am confident enough in my buying skills to be comfortable putting a max 10% at initial cost. After that though I will let winners run to whatever percentages they want.

 

Doing a max of 10% allows me for a large enough commitment to move the needle, but that also in a worst case scenario if I was completely wrong and the company went bust, I’d handle losing 10% of the portfolio. Has never happened but I like the feeling of a capped downside of 10% on each new position.

Yea this is very similar to how Ackman approaches it. 5-7% of capital at risk on an idea. 

[KCLarkin]

If you only have 5 good ideas, it is very easy to create synthetic diversification by buying an index fund.

 

If you want the equivalent of a 20 stock portfolio, that is 5% per stock. So you could put 25% in your five ideas. And index the rest (just need to be cautious if index is top heavy). 

 

But diversification is highly personal. It depends on your skill, style, pain tolerance, etc.

[Longnose]

2 hours ago, whatstheofficerproblem said:

 

Ericopoly hasn't been as active these days. Please tell us about his exploits.

I feel like he posted his story somewhere back in like 2021. But search is brutal on this platform. 

 

But i think UK cited it right he made a deep highly concentrated bet on BAC with leaps, warrants, and common. That paid off massive for him.  I believe he made few other very concentrated bets after that too that paid off really good for him too. 

 

 

[Milu]

2 hours ago, Gregmal said:

Yea this is very similar to how Ackman approaches it. 5-7% of capital at risk on an idea. 

Seems like a good balance between conviction in the idea but leave open possibility of being wrong. I'd never be comfortable putting 20% of my capital into a single idea, I'm never going to be confident enough to do that. anything from 7-10% results in a hypothetical portfolio of 10-15 positions which seems ok to me.

[villainx]

17 minutes ago, Milu said:

I'd never be comfortable putting 20% of my capital into a single idea, I'm never going to be confident enough to do that.

 

Do you trim winning positions - regularly?

[dwy000]

52 minutes ago, villainx said:

 

Do you trim winning positions - regularly?

I know this was to Milu, but...

 

I hate trimming positions generally for tax reasons, so try to only do it if its really overpriced (ie by more than the tax id pay on sale).   I try to sell covered calls for the trim amount at the price i think is overpriced and that way if I get called away I know its okay and I've got an even larger unrealized gain from the remaining position 

[Milu]

1 hour ago, villainx said:

 

Do you trim winning positions - regularly?

I don’t, I’m fine letting the winners ride. Perhaps if a position got up to something large like 30%+ I’d consider trimming a little but so far hasn’t come up yet.

 

it’s not fully rational as I suppose you could make the argument that buying in at 20% is the same as holding a position of 20% but sometimes we investors aren’t fully rational. 

 

 

 

 

 

[73 Reds]

15 minutes ago, Milu said:

I don’t, I’m fine letting the winners ride. Perhaps if a position got up to something large like 30%+ I’d consider trimming a little but so far hasn’t come up yet.

 

it’s not fully rational as I suppose you could make the argument that buying in at 20% is the same as holding a position of 20% but sometimes we investors aren’t fully rational. 

 

 

 

 

 

<<but sometimes we investors aren’t fully rational>>  This.  If something works for you, whether it be investment-related or anything at all, there is no need to justify or rationalize it to anyone else. 

[SharperDingaan]

With a new family, your bias should be towards sectoral index funds; your decision limited strictly to how much to each index fund. Simply buy and hold, re-balance by allocating new funds to underweight sectors, and just enjoy/nurture what you have.

 

Thereafter, should time and interest allow, learn how to do/use macro forecasting; global shock X, would affect your region how?, good or bad for which sectors?, over/underweight your index funds accordingly. Stay near to the industries you work in, as there may be employment impacts; hence time invested will also be proactive employment management.

 

Once you have become experienced/comfortable with being the 'outlier', making/backing your own conclusions, you can think about raising your game. As many friends will not be doing this, expect to be mocked as a 'paranoiac', and become comfortable with it. Then learn how to be gracious, and not let the bankruptcies and related divorces of friends bother you ...  as they fall by the wayside, and you steadily move ahead. Sounds simple .... but until you actually experience it.

 

After that, keep reading the COBF board ... as most of your questions will already have been answered.

 

Good luck!

 

SD

Edited January 15 by SharperDingaan

[SharperDingaan]

On 1/14/2026 at 2:08 PM, Gregmal said:

Yup. Been rocking core 4 or 5 as like 80-100% of the portfolio and then using ~30% or so of margin to play smaller stuff. Dont know why anyone would waste time doing fundamental analysis to own a bunch of 5% positions, assuming those 5% positions are considered "full". So much easier to own the index...but then you get folks who still wanna get outwitted by Mr Market and own the index minus all the best stuff, so who knows?

 

+1

 

Including cash, bonds, and ETF; we typically hold 7-8 positions at most. Sidecars excluded as they are house funded, big digit share positions, held for long periods awaiting exit events; any one of which occurs, being life changing.

 

SD

Edited January 16 by SharperDingaan

[Vish_ram]

Just my 2 cents

 

1) 99.99% of all stocks go to zero in the long enough time frame. 

2) Keep the $ in broad index funds (total market, intl total etc) to cover all the needs

3) Own anything else for your wants

4) As you grow old you’ll realize that the world is changing fast and your mental faculties are in decline. #2 keeps you from becoming poor

 

You don’t get killed by what you don’t know, you get killed by what you know for sure that ain’t so

[sholland]

8 hours ago, Longnose said:

I feel like he posted his story somewhere back in like 2021. But search is brutal on this platform. 

 

But i think UK cited it right he made a deep highly concentrated bet on BAC with leaps, warrants, and common. That paid off massive for him.  I believe he made few other very concentrated bets after that too that paid off really good for him too. 

 

 

IIRC @ERICOPOLY started off as you indicated, but in the middle switched to being all-in with margin with put options as insurance.

[Stuart D]

1 hour ago, Vish_ram said:

 

Just my 2 cents

 

1) 99.99% of all stocks go to zero in the long enough time frame. 

2) Keep the $ in broad index funds (total market, intl total etc) to cover all the needs

 

This is a good point. Reminds me of the Buffett AGM where he called out none of the top 10 names from the index 30-yrs ago bring in the top 10 today. Highlighting the benefits of index’s rotating in and out of names.

[dwy000]

1 hour ago, Vish_ram said:

Just my 2 cents

 

1) 99.99% of all stocks go to zero in the long enough time frame. 

2) Keep the $ in broad index funds (total market, intl total etc) to cover all the needs

3) Own anything else for your wants

4) As you grow old you’ll realize that the world is changing fast and your mental faculties are in decline. #2 keeps you from becoming poor

 

You don’t get killed by what you don’t know, you get killed by what you know for sure that ain’t so

You realize this is a stock investment board right?

[dwy000]

31 minutes ago, Stuart D said:

This is a good point. Reminds me of the Buffett AGM where he called out none of the top 10 names from the index 30-yrs ago bring in the top 10 today. Highlighting the benefits of index’s rotating in and out of names.

Those names were almost all (if not all) acquired.  Very few went to zero. 

[adventurer]

On 1/14/2026 at 8:27 PM, whatstheofficerproblem said:

To invert this, how little is too little? 90% of my portfolio is in one stock with the remaining 10% in the LEAPS for same name. Am I underdiversified?

How long have you been investing like this? I set my max. number of positions at 3. Trying to keep it simple and also due to tax reasons in my country. 

I currently own Fairfax only, mainly because it is a company that I know most of (next to Berkshire and thanks to Viking) and because it still has a long way to go.  

[ANP301191]

On 1/14/2026 at 8:34 PM, Longnose said:

I am in a similar situation.

 

And last year i realized with 15 or so positions that when things would win. It didn't really matter to the whole portfolio.  Then one night i flipped open my copy of poor charlies almanack and landed on this page. 

 

 

During the next week i narrowed down my highest convictions bets and now I intend to run 2-3 at most 4.  positions until i feel I hit a threshold / age where I feel preservation is more important than growth.  In theory Id like to say I have the stones to find a few of those wonderful companies that I can just "never" sell.  But early in Charlie and Buffets careers they definitely traded more than the HODL mantras they use now that they have larger sums. 

 

 

Thanks for all the feedback - love this quote. Was going in the same direction but again unable to push the trigger because of the fear/greed. But as I am seeing less and less opportunities in the market, keeping a lot really shitty businesses in the portfolio. I think going to 5-6 positions is probably where I will end up.