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

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.

All that this exercise demonstrates is that concentrating a portfolio improves the chance that the performance of the portfolio deviates from the performance of the underlying index, not that it improves the performance over the underlying index. The expected return of a randomly selected portfolio is still the underlying average. We’re not interes

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

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 holdin

He doesn’t search for investments in analyst reports, or by speaking to sell-side researchers. “People on Wall Street tend to be very articulate, highly educated and intelligent, and can be very persuasive,” he says. “It’s best to just stay away.”

There are two striking aspects of Shannon’s portfolio observable in the 1981 snapshot. The first is the extreme concentration. Fully 81 percent of the portfolio was dedicated to his biggest position, Teledyne. His second- largest holding, Motorola, made up another 12 percent of the portfolio, and Hewlett-Packard, the third-largest holding, accounte

Permanent capital—capital not subject to withdrawal or redemption—is an essential component for achieving high returns in concentrated portfolios because it offers the luxury of ignoring the short-term fluctuations of the market:

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 under