Diversity! Diversity! Diversity!
That’s the conventional wisdom for achieving the best investment returns.
In their new book, Concentrated Investing, Michael van Biema and Allen Benello challenge that notion by reviewing the performance of a group of value investors who have achieved superior returns by managing concentrated portfolios of a small number of undervalued securities and holding them long term through the highs and lows of the market cycles.
On April 6th, the authors presented their case for concentrated Investing to a capacity audience of students at Flom Auditorium on the Rose Hill campus. They reviewed a number of case studies ranging from famous concentrated value investors such as Warren Buffet and Charlie Munger of Berkshire Hathaway to less well known investors such as Joe Rosenfield of Grinnell College, Kristian Siem, of Siem Industries, and Lou Simpson of GEICO.
They explained that the key to success for concentrated investors is to have a stable pool of long term capital that is not subject to withdrawal on short term notice because returns of concentrated portfolios can be quite volatile over short periods. Over the long term, however, the performance of these concentrated value investors has far surpassed the performance of investors who manage highly diversified portfolios.