The posts on csinvesting are all excellect - well worth checking out. I'm running a backlog in my reading so I'm going to write some sketch notes on his reactions to the reader discussions on "charlie479". He talks about the level of concentration/diversification, and what you should pay. Here goes ... all emphasis mine ...
key to long term wealth creation is to invest in compounders. special sits may give you return uplift, but you still face capital reinvestment risk as you attempt to redeploy capital.
great performance results come from investing in compounders at a valuation as low as possible. compounders are rare but not cheap, true compounders even rarer. this means you have to be willing to look at ugly situations (e.g. European stocks) or try to identify them before anyone else.
concentration: 5-10 in compounders that can redeploy capital at high rates is nirvana, but exceedingly difficult and rare to do, and is volatile. if buying net-nets, own 5-10 companies in a sector, because you're playing a numbers game.
if buying a stable franchise then buy 20-25 names because you have no edge other than price. be quick to sell if price closes to intrinsic value. i am taking a long track record of stability as my benchmark rather than my edge in understanding of how long the company can maintain its competitiveness. i assume the company will onto it while i am the owner (the odds favor the strong) but i will be wrong occasionally, as franchises (nokia, newspapers, radio) get breached or destroyed.
munger quote: our most important asset is our limitations ... [if] we respect our limitations we don't suffer from them
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