GEICO’s portfolio under Simpson was notable for its low turnover relative to that of its competitors.161 He says that he has done very well when fully invested, found a new idea, and then sold out of the idea that he had the least confidence in to replace it with the new idea.162 He argues that, once the portfolio is fully invested, one, two, or

If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. If it’s your game, diversification doesn’t make sense. It’s crazy to put money in your twentieth choice rather than your first choice. . . . [Berkshire Vice-Chairman] Charlie

If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. If it’s your game, diversification doesn’t make sense. It’s crazy to put money in your twentieth choice rather than your first choice. . . . [Berkshire vice-chairman] Charlie

The reason for the extreme concentration is the second striking feature of Shannon’s portfolio: He didn’t trim positions. Shannon simply remained invested in each as they grew. This allowed Motorola to compound his initial investment 57 times. Teledyne, his largest investment, grew an incredible 194 times. Hewlett-Packard, his second-largest

Sit still: Patience—measured not just in years but in decades—is an investor’s single most powerful weapon. Witness Rosenfield’s fortitude: In 1990, right after he bought Freddie Mac, the stock dropped 27%—and Grinnell’s total endowment shriveled by a third. And although Sequoia crushed the S&P 500 cumulatively from 1979 to 1998, the fund

The trick with a very concentrated position is to buy a business where you can’t lose a lot but where you have some idea about why you might make a lot.

In the idealized model, the portfolio manager has an accurate probability distribution on the future performance of each asset in the universe of potential investments. Kelly’s methodology then provides a quantitative specification of how big a position to take in each of the candidate assets. Not surprisingly, the fraction of one’s portfolio to be

The key to Shannon’s Demon is the constant rebalancing of two more uncorrelated assets. (Correlated assets move together, uncorrelated assets do not move together.) The rebalancing forces the investor to buy stock at the low, and sell at the high. Investors who dollar- cost average into a position are taking advantage of this phenomenon.

Though he doesn’t follow any magic formula for investing, believing that investors should keep an open mind about valuation, his favored metric for valuation is price to free cash flow measured on a per share basis.120 He seeks out those positions in which he thinks the valuation is reasonable, and there will be continued top and bottom line growth