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Diversification is an illusion

Ironically most Gurus are Focused investors. Buffett and Munger and Carlos Helu the 3 "deans" of value investing and my personal heroes all believe in making LARGE bets when the odds are in their favor. Buffett's purchase of American Express (NYSE:AXP) during the "salad oil" scandal of 1963 had him put 40% of the partnership's assets into one asset. Buffett in his speeches to college students is famous for mentioning the card with 20 punches ONLY for your ENTIRE Investment career.

Munger, in his speech at USC at 1994 on a Lesson on Elementary, Worldly Wisdom as it relates to Investment Management and Business, said that you wait until you find a mispriced opportunity. The wise ones bet ONLY when they get that great opportunity. They bet big when they have that opportunity. The rest of the time they don't, it’s that simple. Later in the same speech he says that “most of Berkshire Hathaway and all of its accumulated billions, the top ten insights account for most of it. And that's with a very brilliant man ‑ Warren 's a lot more able than I am and very disciplined ‑ devoting his lifetime to it. I don't mean to say that he's only had ten insights. I'm just saying, that most of the money came from ten insights." Right now 3 stocks are responsible for 55% of the 40 billion dollar gain in Berkshire 's portfolio and 80% of that portfolio consists of 7 stocks (KO, AXP, WFC, PTR, PG, JNJ and MCO).

Helu is the richest man in the world and has made many HUGE concentrated bets in telefonos mexico and Altria to name a few

One reader on Billytickets forum has 90% of his money in 2 stocks. (2 of my "favorites" I might add) These 2 stocks (JNJ and BRK-B) are both considered underpriced by Buffett and Munger respectively. Buffett invested $1.5 billion in the first quarter giving him $3 billion invested tota Now really is further analysis needed? Are you so rich and have so much "extra" money that you don't need to be betting "every possible" dollar on what these 2 "experts" are doing. Win or lose the reader will be "following" Buffett and Munger and maximizing his investment "chances".

I understand that many are "impatient" and want to own "many stocks". Each person needs to do what suits his/her personality best. The stock you buy at 45 times earnings that doubles in 6 months might be profitable but you are not practicing value investing. The true value investor bets infrequently and on stocks that are "priced" appropriately. Buffett did not buy Wal-Mart, JNJ and Coke when the PE's were 35 but when they were "teenagers" (P/E in the teens). HELU made his HUGE bet on Altria when the PE was 8 Financial "freedom" will soon come your way. I know it’s possible because it happened to me