Concentrated Investing: Strategies of the World's Greatest Concentrated Value Investors

The investors we examine, however, tend to be variance seekers. At the same time, however, they are able to produce returns with low downside volatility compared to the underlying markets in which they invest.

One common feature of these investors is that they have had permanent sources of capital, which has changed their behavior by allowing them to endure greater volatility in their returns.

The strategy we’ve adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an inves

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.

As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little

Once again, placing bets of significant size depends on appropriately skewed probabilities, and these types of probabilities are uncommon, but both the mathematics and the investors argue for large bets when situations with unusual risk/return arise. It is important to note that the risk referred to here is the risk of permanent loss of capital and

We used to have a thing that any time Goldman recommended a stock, I would sell it, and every time they recommended a sell, I would buy it. I knew if they put out a sell, they wanted it to go down so they could buy it, and I knew if they recommended a buy, it was going to go down because they wanted to sell. And it practically always worked. And pe

John [Shapiro] and I, we’re the yellow pad people. We always did our analysis just on the yellow pad. It makes you much more sensitive to getting something generally right, as opposed to a multivariate, 600-line model that can get everything precisely wrong.

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