Why does FocusInvestor.com exists?
FocusInvestor.com’s mission is to help educate investors on the focused investing concept by providing high-quality, original investing-related articles to the visitors of the Internet site.
The site will support its mission by posting articles on focused investing, providing original, high-quality investing articles, providing message boards where focus investing can be discussed rationally (along with relevant company specific discussion), writing business/investing book reviews, by selling out-of-print business/investment books (concentrating on investing books written by Benjamin Graham), and by providing links to relevant sources of information on the Internet.
What about diversification?
I believe that approximately 10-15 positions will supply more than an adequate amount of diversification. There are successful investors, Tweedy Browne for example, that have had hundreds of positions in their portfolios. For an individual investor it is impossible to understand that many businesses. It makes perfect sense to concentrate investment selections in companies that provide the highest probability of providing long-term investment gains. As Warren Buffett says, “Stick to your own circle of competence.”
Does this approach work for everyone?
No. I believe it takes a rare psychological makeup that provides the investor with the ability to believe in their conclusions no matter what the “market” or other investing “experts” have to say. The courage to stand firm in your convictions can be a rare quality. Investors must be able to tune out the “noise” that comes from sources like CNBC. The Focus Investor also needs to be able to withstand swings in their portfolio valuations as focused portfolios are almost certainly to be more volatile than “normal” portfolios. The investor who follows this approach should also have a firm understand of how to determine a company’s valuation. They must not kid themselves into believing they are investment experts. Put simply they must understand completely what they know and not kid themselves about what they do not know. I recommend the index fund approach to inexperienced investors.
Does this strategy have a better than average chance of beating the returns of the overall market?
Yes, it potentially does. Focus investing contains all the tools required for the investor to potentially beat the indexes, provided the investor is hard working, has the right mindset, and understands the investment process. The results achieved will almost certainly be more volatile than the average portfolio, however. This strategy in the hands of an inexperienced investor could also lead to not beating the market returns.
Why doesn’t everyone practice this approach if it is so noteworthy?
My experience has shown that people either understand the value of the approach almost immediately (it is part of their “psyche”) or they never seem to understand the key points. The ideas of wide diversification as a necessary component of investing combined with the idea of risk in the market being defined as volatility are so prevalent in mainstream thinking that most individuals have a hard time separating themselves from the crowd on these issues.