What are you buying today?

[Patmo]

Finished building a 10% position in AIQ. 2015 will be my concentration test year, i have now 50% in 3 stocks and 80% in 6. I am still under the impression that i am sufficient diversified.

Let's see how you react when 2 of your 3 positions go down 50-75% in price. Are you ready to stand such volatility?

[frommi]

I can't find any new ideas. Would you mind sharing the names. I will like to do my due diligence.

Regards.

FFH (27%)
OUTR (10% Common + 5% LEAPs)
AIQ (10%)
SEC.TO (10%)
Intralot (10%)
PKX (10%)
NRW.AX (5%)
9628.JP (5%)
5965.JP (3%)
7292.JP (3%)

Let's see how you react when 2 of your 3 positions go down 50-75% in price. Are you ready to stand such volatility?

I think its a lot easier when you know what you own and have stress tested this beforehand. Most of my businesses are recession prove and SEC and FFH are diversified in itself. Overall i think that the correlation between these businesses is really small.
I am pretty sure that i will not be happy if i get those drawdowns, but i don`t think that more diversification is helping me to achieve my goals.

[benbuffett]

Finished building a 10% position in AIQ. 2015 will be my concentration test year, i have now 50% in 3 stocks and 80% in 6. I am still under the impression that i am sufficient diversified.

Hi Frommi,

Thats a concentrated portfolio you have. What percentage of cash do you hold in the portfolio? Like Patmo mentioned. How would you react to a large draw down on 2 or 3 of your holdings?

What works for Michael Bury, Mohnish Pabrai, or even Warren Buffetts early partnership days might not work as well for an individual.

[frommi]

Hi Frommi,

Thats a concentrated portfolio you have. What percentage of cash do you hold in the portfolio? Like Patmo mentioned. How would you react to a large draw down on 2 or 3 of your holdings?

1% cash, i am still working so i don`t see a reason to hold a larger cash stake (but the yearly contributions are smaller than 10% now). In case of a drawdown i do nothing as long as the businesses progress as i expect them to, what else should i do? Sell?

What works for Michael Bury, Mohnish Pabrai, or even Warren Buffetts early partnership days might not work as well for an individual.

I am a cloner and i clone everything that works. The math says more diversification doesn`t reduce risk significantly but reduces returns. There are so many threads in this forum where you can find evidence for this. Most people talk about diversification and the 100 businesses they have in their portfolio but then overlook that most of these are correlated anyway.
In the end everybody has to do what works for them and since i noticed that 70-80% of the stocks i buy go up 2-4 weeks after i bought, i thought i can reduce the number of my holdings. Thats the advantage of being a good market timer, though its of course not necessary to be one when you are a good value investor.

[randomep]

BAC

[vinod1]

I think its a lot easier when you know what you own and have stress tested this beforehand. Most of my businesses are recession prove and SEC and FFH are diversified in itself. Overall i think that the correlation between these businesses is really small.
I am pretty sure that i will not be happy if i get those drawdowns, but i don`t think that more diversification is helping me to achieve my goals.

Most of the concentrated investors had portfolios consisting of nearly iron clad moats or hard asset values. FFH should be fine, but I have no idea of the moatiness of the rest of your portfolio. Do you think the rest have solid moats?


Vinod

[frommi]

Most of the concentrated investors had portfolios consisting of nearly iron clad moats or hard asset values. FFH should be fine, but I have no idea of the moatiness of the rest of your portfolio. Do you think the rest have solid moats?

Vinod

You can look up all my holdings in the Investment Idea section. NRW.AX and the japanese stocks are mainly asset plays (thats the reason that these stocks are all smaller holdings), the rest have something in place that protects the cashflows for the next years. PKX is the lowest cost steel producer (though i am not sure if the currency wars deteriorate that one).

[writser]

I've researched most of the names you hold and I own a couple of them too. That said, I think your portfolio is extremely risky and unless you are as great an investor as Packer there is a non-trivial chance of permanent loss of capital "experimenting with a concentrated portfolio". If you are retired I would say this is a horrible strategy but I assume you are young and do not depend on your portfolio for income. In that case it it just, well, risky ☺.

Just my 2 cents, please don't feel offended.

[frommi]

I've researched most of the names you hold and I own a couple of them too. That said, I think your portfolio is extremely risky and unless you are as great an investor as Packer there is a non-trivial chance of permanent loss of capital "experimenting with a concentrated portfolio". If you are retired I would say this is a horrible strategy but I assume you are young and do not depend on your portfolio for income. In that case it it just, well, risky ☺.

Just my 2 cents, please don't feel offended.

Thanks for your honest words, but how exactly do you quantify risky? From my point of view there is no single risk that i know of that is able to erase more than 25% of my portfolio in one fellow swipe.
I mean look at Monish Pabrais portfolio of BAC,C,GM,FIAT,PKX. Thats cars, steel and banking. All are heavily correlated to the US/world economy, i would call this at least double to triple as risky as my portfolio.

[writser]

A 2008 style crisis can erase 25% from ANY portfolio. Charlie Munger once said you should expect a 50% drawdown at some point in your career (and he experienced it too if I'm not mistaken).

Just to give some bad scenarios: Senvest (which I hold too) is basically a leveraged bet on the stockmarket. In a downturn both its portfolio will decline quickly and clients withdraw assets. Their fund holds quite a few speculative positions. In 2013 Senvest was up 100%, I think it could easily go down 50% or more in a bad year.

In such a year your OUTR options would expire worthlessly as well. I own a couple of your Japan holdings too. I think they are good bets but let's be honest, we invest in these companies from our couch in Europe and we don't know anything about them. Fujimak etc could easily decline 50% for some reason we don't know yet. If they are cooking the books, how could we ever know?

Most of your holdings are smallcaps and I don't know enough about them but you can't rule out anything bad happening in these - they are no Berkshires or Exxons.  And god forbid something terrible happens at Fairfax. Or suppose the euro crisis is over and the euro appreciates by 40% in a year - you'll underperform by roughly that percentage.

Also, the point of diversification is not only to be protected from the risks you "know" but also that your portfolio can withstand the risks you "don't know". If something "unknown" happens with Fairfax you are down 25% instantly.