"The expectation is that you be diversified enough that you come out ahead in aggregate."
That's something else that Buffett is not a great fan of, namely holding a vast number of companies purely for the purposes of Diversification.
Compared to many other major and well known fund managers, his own common stock "Portfolio" is relatively small .... 49 stocks ....
warrenbuffettstockportfolio.com
I guess that's not surprising seeing as his requirements for Durable Competitive Advantage are fairly stringent.
From what I've read in the past, there are some on this board who hold far more than 49 stocks !!
But there again, it's up to an individual as to how and why they wish to invest in the stock market.
"Graham expected with net-net investing that a percentage will go bankrupt
Personally I wouldn't have thought that was a sound principle on which to invest in a company. I can't think of many companies that Berkshire Hathaway has held that went bankrupt while they were still held by Buffett. If I'm wrong maybe you can point any out to me.
If one looks at the Income Statement of an Industrial type company and you see, among other things, a reasonably good ongoing increase in top line Revenue, Gross Profit Margin greater than 40%, a high EBITDA/Revenue ratio, a low Interest Expense/EBITDA ratio, a high Pretax Income/Cap.Employed ratio and a relatively high bottom line Net Income/Revenue ratio, then it's generally unlikely that you are looking at a company heading for bankruptcy.
As a matter of interest, have you read "Warren Buffett and the Interpretation of Financial Statements" by Mary Buffett and David Clark ? |
