Bob Rodriguez 25 years experiment on Concentration

[oddballstocks]

In thinking more about this topic, it appears that on a diversified basis value investing can add from 1 to 4% annual in terms of returns.  To get higher returns you need either to use leverage (margin, options or warrants), concentration or market timing.  Using Bob's example, the FPA Capital fund is the diversified vehicle (but is also subject to client withdrawls).  FPA Capital returned 15.2% over his experiment period, the S&P 500 10.6% (with dividend) and his top 5 fund 24%.  So his value methodology added 4.6% and the concentration an additional 8.8%.  If you look at the investors in the appendix of the Intelligent Investor you see the same trend the concentrators (Buffet, Munger, Guerin) outperform the diversifiers (WSJ and Tweedy Brown) by about 10% per year.  I am wondering how have the value concentrators versus diversifiers done here.  The 2 styles are for different types of individuals - the diversifiers (more conservative) and the concentrators (more aggressive). 

 

For example (I am a concentrator) and I have 10.5 year returns of about 37% annualized versus the S&P of 8% and the FPA Capital of 11%.  What are other folks experiences?  TIA.

 

Packer

 

Great results, you are obviously very wealthy, or you started from zero back 10 years ago, and with a few more years of 37% returns will be wealthy.  If you can somehow keep it up for another decade or two you will likely be a billionaire.

 

I'm curious as to why you still have a day job as well?  Presuming you started with $50k or so you're making $300-400k a year from investment gains.  Is it that you don't want to tap the kitty yet, or is it that you just love your job? 

[CorpRaider]

For example (I am a concentrator) and I have 10.5 year returns of about 37% annualized versus the S&P of 8% and the FPA Capital of 11%.  What are other folks experiences?  TIA.

 

Packer

 

Those are some sick results. Well done.

 

I am a concentrator for sure; I can handle volatility. For instance right now I'm 30% WFC, 30% BRK, 15% DTV, 10% GS, 10% LRE.L. 

 

For 10.5 years, returns are 14.2% annualized = 6% outperformance.

For 13.5 years ( when I started), the outperformance is 9% per year.

 

Most of this outperformance can be attributed to just two events/decisions:

 

1) Heavily owning BRK in 00-02 as it went up and the market tanked.

2) In March '09 putting 1/3 of my portfolio each into WFC and AXP at ~$10 each.

 

So have I been smart or lucky? Munger has said getting rich only takes a few decisions...and I was extremely confident in those choices, but still...I would say someone with simliar results spread over many decisions would be on sounder footing.

 

Nonetheless, I'll take it  ;D

 

Nicely done.  I could make a convincing case that I display extreme arrogance by being lucky enough to live at the same time as arguably the greatest investor the world has known and yet not owning any BRK or WFC.

[augustabound]

In March '09 putting 1/3 of my portfolio each into WFC and AXP at ~$10 each.

 

 

What made you choose those 2 rather than some of the other beaten down stocks around that time?

[Packer16]

I do enjoy my job but most of the investments are in IRA accounts so I can't touch them for another ten years without paying taxes or penalties.  I still have 2 kids to put through college so I will probably need employment until they are out of college.  I am surprised at the portfolio results so far but I know the next 10 years will not be like the last 10 years, not even close.  At some point I would like to invest more on a full time basis but given the timing of my future expenses with college and all it will be a few years before I go solo. 

 

I am interested in peoples results in whether concentration has helped or hurt performance.  It may be somewhat self selecting but from the responses so far it appears to have helped.

 

Packer

[Guest longinvestor]

I do enjoy my job but most of the investments are in IRA accounts so I can't touch them for another ten years without paying taxes or penalties.  I still have 2 kids to put through college so I will probably need employment until they are out of college.  I am surprised at the portfolio results so far but I know the next 10 years will not be like the last 10 years, not even close.  At some point I would like to invest more on a full time basis but given the timing of my future expenses with college and all it will be a few years before I go solo. 

 

I am interested in peoples results in whether concentration has helped or hurt performance.  It may be somewhat self selecting but from the responses so far it appears to have helped.

 

Packer

 

Check out SEPP (Substantially Equal Payment Plan), assuming you live in the US. That is a penalty-free way to tap into IRA's.

 

On the subject of concentration, I'm one of them. I actually have initiated a couple of discussion topics on this very subject, on this very board over the past 4 years. My conclusion is many on the board (at least the active ones) are not concentrators. The reasons have been discussed as nauseum in other threads.

 

FWIW, I've a concentrated portfolio of 3: BRK A/B, FRFHF and LVLT and like you the significant part is in retirement. I've been managing this portfolio since 2005, started with 10 + positions and triangulated down to 3. Annualized returns of 12% thus far. I have no particular return expectation other than a reasonable assumption of modestly beating the index over the long term. Don't do options, leverage etc. Don't understand them and follow Warren's counsel "What a miserable way to live, make time your friend". I don't have strategies like "sell when IV reached" etc. Will sell when there is a need for the money.

 

Later, when I have 10-15 years of outperformance under my belt, I would like to spread the wisdom of this approach within my circle of folks. I'm trying but it is underwhelming in light of all the Kool-Aid many people with money have drunk from the advisors, media etc. So I've another path going, have started in a small way, bringing  20 somethings I know to the BRK meeting. This year there was one, hope to bring at least 3 next year. I'd be elated if they were to get into the concentration habit and buy-and-hold-forever while they are still twenty something.

[Uccmal]

Quite the results Packer.  Mine are roughly, 9 years at 25% annualized.  I will note that the result is after tax.  I oay the taxes each year out of my brokerage accounts, so that does not equate to  posted mutual fund results.  I have always been concentrated, in 2005/06 I was essentially 90% in FFh. 

 

Right now, I am about 75% in US financials.  Seaspan and the RBS prefs make up most of the rest. 

 

Since my last post here I decided to reduce my aggregate borrowings to zero and am about there.  I get disconnects between US and CDN accounts. i.e. I have 100 G borrowed in the US account offset by 100 cash in the CDN.  I am now very willing to accept lower returns in exchange for lower risk. 

 

Too many times I have lost, and had to earn back the losses.  I would rather bypass that circus going forward.

[indirect]

Packer, Congratulations on your 10 yr record.  I gave much of my money to a fund which did well, however I did better with that fund because I put in more money when the markets crashed in 08/09.

 

Personally, my own managed money has  around 30% annual return  over 10 yrs with leverage and concentration, so higher risk and I do not consider it good risk adjusted return. I have enjoyed the ride with the board ( esp Al, Sanjeev, Eric and others) since the days of FFH.

[no_free_lunch]

Well I have posted my results before and I don't mind embarrassing myself once again.

 

I run a diversified portfolio with ~30 stocks, a value investing style and doing investing purely as a hobby.  From fall '03 to november '12 I outperformed the S&P by about 2% per year. 

 

That being said it really seemed that I would get around 5-10% over the index when I really devoted myself to it but I would always burn out after a 3 or 4 months and then just ignore the portfolio for lengthy periods.  I think I once went a full year without even checking my balance.

 

I have switched to a more concentrated style (10-12 stocks) so it will be interesting to see in another decade what the difference is.

[twacowfca]

In thinking more about this topic, it appears that on a diversified basis value investing can add from 1 to 4% annual in terms of returns.  To get higher returns you need either to use leverage (margin, options or warrants), concentration or market timing.  Using Bob's example, the FPA Capital fund is the diversified vehicle (but is also subject to client withdrawls).  FPA Capital returned 15.2% over his experiment period, the S&P 500 10.6% (with dividend) and his top 5 fund 24%.  So his value methodology added 4.6% and the concentration an additional 8.8%.  If you look at the investors in the appendix of the Intelligent Investor you see the same trend the concentrators (Buffet, Munger, Guerin) outperform the diversifiers (WSJ and Tweedy Brown) by about 10% per year.  I am wondering how have the value concentrators versus diversifiers done here.  The 2 styles are for different types of individuals - the diversifiers (more conservative) and the concentrators (more aggressive). 

 

For example (I am a concentrator) and I have 10.5 year returns of about 37% annualized versus the S&P of 8% and the FPA Capital of 11%.  What are other folks experiences?  TIA.

 

Packer

 

Wow! You've got us beat, Keith. Over a slightly longer period, 13.5 years, the best estimate for our geometric return is 27.5% per annum, compounded. Of course, Eric puts both of us in the shade.

 

At one time or another since Y2K, we have had more than half the portfolio value in one of five different companies.

[Packer16]

Yeh, I think Eric probably even beat Greenblatt's 10-yr 50% per year run.  He definately has a focused style.  Given your size, you have provided more value add then me.  I would be more than happy if I get close to your 27% for the next 13.5 years.  It appears that concentration is part of the secret sauce of outperformance.  This forum has been great to get a good "second" look at some of my more offbeat selections.  Thanks.

 

Packer

[giofranchi]

In thinking more about this topic, it appears that on a diversified basis value investing can add from 1 to 4% annual in terms of returns.  To get higher returns you need either to use leverage (margin, options or warrants), concentration or market timing.  Using Bob's example, the FPA Capital fund is the diversified vehicle (but is also subject to client withdrawls).  FPA Capital returned 15.2% over his experiment period, the S&P 500 10.6% (with dividend) and his top 5 fund 24%.  So his value methodology added 4.6% and the concentration an additional 8.8%.  If you look at the investors in the appendix of the Intelligent Investor you see the same trend the concentrators (Buffet, Munger, Guerin) outperform the diversifiers (WSJ and Tweedy Brown) by about 10% per year.  I am wondering how have the value concentrators versus diversifiers done here.  The 2 styles are for different types of individuals - the diversifiers (more conservative) and the concentrators (more aggressive). 

 

For example (I am a concentrator) and I have 10.5 year returns of about 37% annualized versus the S&P of 8% and the FPA Capital of 11%.  What are other folks experiences?  TIA.

 

Packer

 

Wow! You've got us beat, Keith. Over a slightly longer period, 13.5 years, the best estimate for our geometric return is 27.5% per annum, compounded. Of course, Eric puts both of us in the shade.

 

At one time or another since Y2K, we have had more than half the portfolio value in one of five different companies.

 

Both Packer’s 37% annualized and twacowfca’s 27.5% annualized are extraordinary results and extraordinarily difficult for me to understand… let alone replicate!

I don’t think they can be explained by the small amount of capital they have managed… whatever small capital they started with, it must have grown very large by now!

In the interview Mr. Bryan describes the best risk-adjusted strategy for investing capital that I could think of:

Why target $1 to $4 billion market caps?

DB: These are big enough companies to have proven themselves, and while not as inefficiently priced as microcaps, they tend not to have the binary risk of success or failure that we want to avoid. At the same time they’re not so big that there are 12 to 15 analysts following the company. Fairly typical for us is to find the $3 billion market- cap company that before it ran into some issues was worth $10 billion.

In the long run (more than 10 years) I don’t think you can keep investing only in microcaps… 1) if you are very successful, like Packer and twacowfca, capital begins to grow large, 2) even if you are extremely capable, you cannot always be right dealing with microcaps, and just a few mistakes can destroy a track-record…

That’s why I think Mr. Bryan's is the best risk-adjusted strategy: concentrate on businesses that have already proven themselves, but are still small enough to triple or quadruple.

And that’s what I do! But I am very far behind both Packer’s track-record and twacowfca’s… So, am I stupid? Do you think such an outperformance can be explained simply by Packer’s and twacowfca’s superior brainpower? I know they both are extraordinarily gifted practitioners of value investing, but it seems hard to believe they do what I do, yet they just do it so much better…!

Or maybe, have they a strategy that is much more effective than Mr. Bryan’s on a risk-adjusted basis?

If so, please tell me! Share your secrets with the rest of us!! :)

 

giofranchi

 

[Packer16]

I think one of the keys is to find a strategy/volatility level you are comfortable with.  It is not worth getting high returns if it ruins your life due to stress.  I would think that most would not like the type of volatility I have experienced (down over 50%) in 2008.  I try to find value stocks which upon first inspection folks say: yikes!.  Very uncomfortable stocks to own - that is part of the reason it is cheap.  Cinedigm is an example.  Howard Marks has heavily influenced the way I look at securities - the way outperform is to hold non-consensus view and be correct.  I can find the non-consensus securities but the correct part does not always work out (NTL and Delta Financial) and the earlier you can see it the better - Lodgenet was one where I left before the ship went down when the firms recovery did not happen and EBITDA went down.  Levine (author of How to Make Money With Junk Bonds) has stated and provides an example of the EBITDA trend being more important the the EBITDA coverage for high yield investing.  The concentration piece is a more recent focus - from both ERICOPOLY, Fairholme, Buffet and a guy a knew about 20 years ago who retired on DELL computer.  He focused on one stock and his son was the firms ad agency so he was able to do well with only one stock. 

 

Packer

[Uccmal]

As per the other thread on intelligence.  I dont think that has anything to do with it beyond a certain point.  One thing for sure is that I have disciplined myself to buy when things are cheap, and sell when things are expensive, and I follow through. 

 

There is also, the 'problem' of being too early, which has made me a fortune.  I originally bought BAC warrants in mid 2010 ( check start of BAC warrants thread).  I kept buying all the way down, moving to Leaps along the way, and then all the way up.  The point here is that I got to know the company over time.  The only way you could buy BAC at $5.00 was to be fairly confident this was a disconnect.  To know that it wasn't right you had to have been around for awhile.  Same with Seaspan.  I bought SSW, the first time in December 2008, and have bought it all the way up.  I am still buying on dips.

 

This would be the concentration aspect of a few good ideas.  You get to really focus on a company as it turns around or exploits its innate advantages.  On the flip side, every year I get a couple of "good ideas?".  I buy the stock, and realize, usually within a few weeks that things aren't as good as they seem, and bail, usually at a small loss.  Then I redeploy the funds back to my better ideas, that I am more familiar with.  Therefore only 7 or 8 stocks in my portfolio. 

 

I think there is an experience aspect to this vocation.  Once you have been stung with companies in secular decline you add that to your mental check list (my examples: yellow pages, sfk/fbk, Rimm).  Once you have been stung by resource stocks revaluing their reserves once or twice, you get gun shy ( caribou Resources no longer exists - the CEO was buying stock right to the day before they filed for BK).  In the end, this leaves a handful of companies in a handful of industries that aren't going to go down.  Again, concentration. 

 

Finally, If its seems to good to be true then it probably is.  I have fallen for the high yield trap many times.  As much as I gripe about dividends I would rather see AIG or BAC incrementally, and conservatively raise their dividends, then run themselves out of cash trying to pump the stock.

 

Nuff said.

[Uccmal]

One common theme here seems to that each person has developed their own investment philosophy and accompanying process.  Just reading balance sheets is not enough.

 

A philosophy and process become ingrained to the extent that you start to feel it.  This is where George Soros' sore back comes in.  I was down 70% in March 2009.  I liquidated what I could and piled into Leaps on a few of the very best US companies.  To be honest I actually had nothing left to lose at that point.  I bought SBux, AXP, GE, HD, and a couple of others.  I ended up 2009 ahead of the end of 2007, and 2008.  My first down year was 2011 due to my own stupidity. 

 

 

[giofranchi]

I think one of the keys is to find a strategy/volatility level you are comfortable with.  It is not worth getting high returns if it ruins your life due to stress.  I would think that most would not like the type of volatility I have experienced (down over 50%) in 2008.  I try to find value stocks which upon first inspection folks say: yikes!.  Very uncomfortable stocks to own - that is part of the reason it is cheap.  Cinedigm is an example.  Howard Marks has heavily influenced the way I look at securities - the way outperform is to hold non-consensus view and be correct.  I can find the non-consensus securities but the correct part does not always work out (NTL and Delta Financial) and the earlier you can see it the better - Lodgenet was one where I left before the ship went down when the firms recovery did not happen and EBITDA went down.  Levine (author of How to Make Money With Junk Bonds) has stated and provides an example of the EBITDA trend being more important the the EBITDA coverage for high yield investing.  The concentration piece is a more recent focus - from both ERICOPOLY, Fairholme, Buffet and a guy a knew about 20 years ago who retired on DELL computer.  He focused on one stock and his son was the firms ad agency so he was able to do well with only one stock. 

 

Packer

 

Thank you, Packer!

In this we actually differ… I don’t pay much attention to the consensus view or to Mr. Marks, when he says there is a bargain price for every asset… vice versa, I want to own only businesses that I reckon good businesses, led by capable and trustworthy people. In other words, I wouldn’t have invested in a textile business in the 1960s or in a newspaper in the 2000s (many other examples are, of course, available), nor I would partner with idiots or villains (with the glaring exception of Mr. Biglari, of course!! ;D), no matter the price that is offered to me.

This might be a serious limitation of mine.

 

giofranchi

 

[jay21]

And that’s what I do! But I am very far behind both Packer’s track-record and twacowfca’s… So, am I stupid? Do you think such an outperformance can be explained simply by Packer’s and twacowfca’s superior brainpower? I know they both are extraordinarily gifted practitioners of value investing, but it seems hard to believe they do what I do, yet they just do it so much better…!

 

Gio, while I am sure that Packer and twacowfca are extremely intelligent, I don't believe that is why they are successful investors.

 

They were my heroes on the board before they posted their results because of the great level of due diligence they perform and their well articulated thought process for each idea.  Glad to see this is a case where good results stem from a good process.

[giofranchi]

Gio, while I am sure that Packer and twacowfca are extremely intelligent, I don't believe that is why they are successful investors.

 

They were my heroes on the board before they posted their results because of the great level of due diligence they perform and their well articulated thought process for each idea.  Glad to see this is a case where good results stem from a good process.

 

Well Jay,

Though it might sound a bit arrogant, I would define ME a ‘successful investor’ (17% CAGR since inception in 2005)…

Packer and twacowfca, instead, are investors from a Marvel Movie!!!! ;D ;D ;D

 

giofranchi

 

[meiroy]

And that’s what I do! But I am very far behind both Packer’s track-record and twacowfca’s… So, am I stupid? Do you think such an outperformance can be explained simply by Packer’s and twacowfca’s superior brainpower? I know they both are extraordinarily gifted practitioners of value investing, but it seems hard to believe they do what I do, yet they just do it so much better…!

 

There's this guy, Joe, since age 10 he has been praying to his god to win the big lottery ticket every day, year after year until now he is in his 80s. One day an angel goes to god and asks him "Oh god, look at poor Joe, he has been praying each and every day for 70 years now, won't you let him win?" Then god replies "I'd love to, it justs that he never buys a ticket...".  When you look at your portfolio, do you estimate that your holdings have a good probability to double within 3 years? If not, it's unlikely you will reach 25%.

[giofranchi]

When you look at your portfolio, do you estimate that your holdings have a good probability to double within 3 years? If not, it's unlikely you will reach 25%.

 

That is a good objection!

I demand:

1) first class management

2) good business

3) at least 10% pre-tax owner earnings yield in year 1, with an history of growth that, if sustained in future years, could lead to a compound return on my investment of 15% annual.

 

Therefore you are right! Very unlikely to reach 25%! :)

 

giofranchi

 

[locatevalue]

One common theme here seems to that each person has developed their own investment philosophy and accompanying process.  Just reading balance sheets is not enough.

 

A philosophy and process become ingrained to the extent that you start to feel it.  This is where George Soros' sore back comes in.  I was down 70% in March 2009.  I liquidated what I could and piled into Leaps on a few of the very best US companies.  To be honest I actually had nothing left to lose at that point.  I bought SBux, AXP, GE, HD, and a couple of others.  I ended up 2009 ahead of the end of 2007, and 2008.  My first down year was 2011 due to my own stupidity.

 

Al, Though our portfolios are different my results seems to match yours though mine is very short period of time as i only started in 2008.More my portfolio size grows and increases in mulitples of my salary its seems more harder to concentrate everything on just 1 or 2 ideas, Loss Aversion kicks in as i always think how long will it take for me to earn everything back with my normal salary. I wonder how Eric concentrate such large amounts in 1 or 2 stocks, thats one thing i need to learn. For that matter how Fairhomes concentrates Billions in just 5stocks is really amazing.Probably time will teach you how to handle more money when great idea shows up or may be i also think extreme concetration happes during the worst times and we are not their currently thats my feeling!

[ASTA]

I am still very young so I only have 2 half years of experience :D But started 2011 feb 14's not concentrated enough and was down 4%. But 2012 up 29% and this year up 23% so I don't have the expertise and track record of others here. But got so mad at myself that I only bought 3% bac at 5.6 that I evolved to more concentration to never miss that one again :D but I hope throughout my career that I will have more bac opportunities. And hope one day one might not feel so bad posting 20% up years :D some people are insane here. But I don't use leverage and only have one shoot of making it as I have no recurring cash flow.     

[twacowfca]

When you look at your portfolio, do you estimate that your holdings have a good probability to double within 3 years? If not, it's unlikely you will reach 25%.

 

That is a good objection!

I demand:

1) first class management

2) good business

3) at least 10% pre-tax owner earnings yield in year 1, with an history of growth that, if sustained in future years, could lead to a compound return on my investment of 15% annual.

 

Therefore you are right! Very unlikely to reach 25%! :)

 

giofranchi

 

That's a good basic list.

 

Even more focused would be a good business with a straight shooting owner that had most of his wealth in the business and a long record of superior returns with the prospect that those returns will continue  indefinitely. Then, all that's needed is a good entry point and willingness to let the compounding begin. That's the surest way to make money, but not the only way. 

 

There are occasionally decent businesses under stress that are likely to be survivors and can be had at a fire sale price : think BAC.  One offs like BRK with a free quasi put at a strike price equal to the market price or BP when all the scientists were saying that their third  attempted method to cap their well was almost certain to succeed in a couple of days as they had detected that they were only were only a few feet away from it.

 

At such times, putting a huge chunk of assets into such opportunities as many on the board have done isn't as risky as Mr. Market thinks it is.

 

 

 

 

 

[Uccmal]

One common theme here seems to that each person has developed their own investment philosophy and accompanying process.  Just reading balance sheets is not enough.

 

A philosophy and process become ingrained to the extent that you start to feel it.  This is where George Soros' sore back comes in.  I was down 70% in March 2009.  I liquidated what I could and piled into Leaps on a few of the very best US companies.  To be honest I actually had nothing left to lose at that point.  I bought SBux, AXP, GE, HD, and a couple of others.  I ended up 2009 ahead of the end of 2007, and 2008.  My first down year was 2011 due to my own stupidity.

 

Al, Though our portfolios are different my results seems to match yours though mine is very short period of time as i only started in 2008.More my portfolio size grows and increases in mulitples of my salary its seems more harder to concentrate everything on just 1 or 2 ideas, Loss Aversion kicks in as i always think how long will it take for me to earn everything back with my normal salary. I wonder how Eric concentrate such large amounts in 1 or 2 stocks, thats one thing i need to learn. For that matter how Fairhomes concentrates Billions in just 5stocks is really amazing.Probably time will teach you how to handle more money when great idea shows up or may be i also think extreme concetration happes during the worst times and we are not their currently thats my feeling!

 

Good points.  Although spring 2009 presented a great opportunity to buy a diversified basket of the very best companies on earth.  My other oversight was not just holding them or converting the options to stock at the time.  I bought sbux below 10, axp below 20, ge below 10, and hd around 20. 

 

Would I have done better keeping those than with BAc in the last year and a half.  Might have been a wash.  Lesson learned.  My plan is to keep BAC, WFC, JPM, AIG, and SSW until they are clearly over valued this time.  However, we know that God laughs at plans...

 

 

 

 

 

"At  such times, putting a huge chunk of assets into such opportunities as many on the board have done isn't as risky as Mr. Market thinks it is."

 

 

This is a very interesting observation, and correct imo. 

[giofranchi]

Even more focused would be a good business with a straight shooting owner that had most of his wealth in the business and a long record of superior returns with the prospect that those returns will continue  indefinitely. Then, all that's needed is a good entry point and willingness to let the compounding begin. That's the surest way to make money, but not the only way. 

 

twacowfca,

you already know that by “first class management” I meant exactly what you have written! ;)

 

There are occasionally decent businesses under stress that are likely to be survivors and can be had at a fire sale price : think BAC.  One offs like BRK with a free quasi put at a strike price equal to the market price or BP when all the scientists were saying that their third  attempted method to cap their well was almost certain to succeed in a couple of days as they had detected that they were only were only a few feet away from it.

 

At such times, putting a huge chunk of assets into such opportunities as many on the board have done isn't as risky as Mr. Market thinks it is.

 

That is much harder for me to do… Though I understand its merit!

It is just that I spend my whole life thinking about business. What works, and what doesn’t. Guess simply not much time left to become shrewd and confident enough to grab opportunities like BAC and BP…

Who knows? Maybe after some time spent on this board… :)

 

giofranchi

 

 

[hyten1]

 

i am still trying to break the magical 20% annualized return barrier.

 

my first 5 years i was very diversified, but within the last 5 years or so i started to be more concentrated where 2 or 3 of my holdings comprise over 60 to 70% of my entire portfolio. the performance # have been a lot better since the concentration, but also more volatile (then again it could just be a coincidence, who knows).

 

but with concentration, you need a lot more patience. in the past i would just buy a small position of quite a few things, since i have so many positions and they are usually small, i didn't need to do a lot of research, but it is a very different story now. i still dabble with small position, but they are usually very tiny and as place holder until either i am convince they should be a larger position or stay as tiny positions.

 

i have also started using leverage through options.

 

the difference in performance is definitely noticeable for me (like i said, this could all be due to luck, coincidence and/or timing). pre concentration i was doing 12 to 15%, but since concentration it is more like 20 to 28% annualized.

 

 

 

 

In thinking more about this topic, it appears that on a diversified basis value investing can add from 1 to 4% annual in terms of returns.  To get higher returns you need either to use leverage (margin, options or warrants), concentration or market timing.  Using Bob's example, the FPA Capital fund is the diversified vehicle (but is also subject to client withdrawls).  FPA Capital returned 15.2% over his experiment period, the S&P 500 10.6% (with dividend) and his top 5 fund 24%.  So his value methodology added 4.6% and the concentration an additional 8.8%.  If you look at the investors in the appendix of the Intelligent Investor you see the same trend the concentrators (Buffet, Munger, Guerin) outperform the diversifiers (WSJ and Tweedy Brown) by about 10% per year.  I am wondering how have the value concentrators versus diversifiers done here.  The 2 styles are for different types of individuals - the diversifiers (more conservative) and the concentrators (more aggressive). 

 

For example (I am a concentrator) and I have 10.5 year returns of about 37% annualized versus the S&P of 8% and the FPA Capital of 11%.  What are other folks experiences?  TIA.

 

Packer