STREET DOGS

Ihave two views on diversification, says Warren Buffett. “If you’re a professional and have confidence, then I would advocate lots of concentration. For everyone else … participate in total diversification. But if it’s your game, diversification doesn’t make sense. It’s crazy to put money in your twentieth choice rather than your first choice. Charlie and I operated mostly with five positions. If I were running 50100200-million, I would have 80% in five positions, with 25% for the largest. There were times I would have gone up to 75%. If it’s your game and you really know your business, you can load up.”

And, in a similar vein, from Joshua Brown at The Reformed Broker: “Stocks, bonds, real estate, cash, humility … you can make a case for all sorts of stuff in a portfolio. But you cannot make a case that they are necessary.

“The evidence suggests that diversifying into other asset classes or strategies can enhance returns during some periods of time or that they can change the amount of volatility a portfolio experiences, but the evidence does not say this is somehow better than sticking with the basics over long stretches of time.

“People will say, ‘What about private equity? What about venture? What about hedge funds? What about managed futures? What about options? What about foreign currencies? What about physical commodities? What about art and wine and classic cars and collectibles? What about cryptocurrencies?’ Sure, or not — your choice. But it works without these things just fine. And be aware that while these additional things may offer diversification benefits, they will also add complexity, new risks, higher costs that may or may not be recouped. And, as in most areas of life, things that have some benefit sometimes also introduce drawbacks at other times. Accept no narratives saying otherwise.”