I disagree with the concentration part (unless is good at it (with historical proof to back it)). Most ppl are famously bad at "picking winners". Even if you're good at it, sometimes you have massive down years with a less-than-three-stocks portfolio. Even Munger had that during the 70's, which caused him to close his fund – it was too unpleasant even for him (mostly because of the complaints from the funds' investors though). If you know that you can handle that, fine. Most ppl can't. (No matter how "small" the portfolio size, if it's a large % of your total capital, a massive loss of portfolio valuation is enormously hard for most people psychologically. (Then again, though, if one is wired that way, one probably shouldn't invest in stocks...))
And nowadays, with brokerage more or less free, why not buy several different co.'s?
At least moderate diversification – say 5-6 stocks at a minimum – I think is prudent.
Try at least for 30%- gains, not measly 10%. Going for such small wins is not going to get you anywhere, because one of those times, you are going to be stuck with a trade that generates terrible losses and negates all the small gains one may have had. This I agree with mostly – though if a stock rises with 10 % within a week or two after buying, then that's a different story. One constantly has to translate gains into CAGR, I think.
Still, it is probably a good idea to hang on to a stub, as Paul Sr. does (and I myself have begun to do), as one sometimes winds up having sold way to soon, when momentum takes hold of a stock and turns it from a hated, "P/E 5 at historically low earnings" stock into a "rising sales + rising profits + rising earnings multiple" stock. Those stubs can become quite valuable indeed then, even if it's just a tiny %. It's sort of like an option, I reckon. |
