Course 506: Great Investors: Warren Buffett
Concentrating on Your Best Ideas
In this course
1 Introduction
2 Determining Fair Value
3 Understanding Your Circle of Competence
4 Sustainable Competitive Advantages
5 Partnering with Admirable Managers
6 An Approach to Market Prices
7 Requiring a Margin of Safety
8 Concentrating on Your Best Ideas
9 The Bottom Line

Buffett has difficulty finding understandable businesses with sustainable competitive advantages and excellent managers that also sell at discounts to their estimated fair values. Therefore, his investment portfolio has often been concentrated in relatively few companies. This practice is at odds with the Modern Portfolio Theory taught in business schools, but Buffett rejects the idea that diversification is helpful to informed investors. On the contrary, he thinks the addition of an investor's 20th favorite holding is likely to lower returns and increase risk compared with simply adding the same amount of money to the investor's top choices.

Next: The Bottom Line >>

Print Lesson |Feedback | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.