“Diversification may conserve wealth, but concentration builds wealth” Warren Buffett

One evening a few years back, while on holiday in Florida, my family and some friends hopped on one of those sunset cruise boats that chugs around the inter-coastal waterway near Sarasota. An evening of warm ocean breezes, tasty drinks, gentle reggae music and the occasional dolphin jumping. A great way to spend a few hours.

But what was really interesting was the real estate. Miles and miles and miles of coast, occupied by the most beautiful waterfront homes. Large. Small. New. Old. All very nice. The value of each one would be substantially more than the average person could ever afford. And there are thousands just in that one small strip of inter-coastal!

I was left with two thoughts:

1. The size of the US economy and the wealth it has generated is truly massive.
2. NONE of the owners of these homes became wealthy by investing in a diversified portfolio

They became wealthy enough to own prime real estate by being concentrated – In their profession, business, or investments. People become wealthy from owning or doing one (concentrated) thing. A Skill. A Job. A Business.

In other words, a ‘diversified’ portfolio won’t make you much wealthier. Unless you have 20-30 years to wait. What will is focus. Concentration. On a lucrative career. On owning a business. On exploiting your skill. Or making game changing investments.

Successful investing with a concentrated, non diversified portfolio is not for the faint of heart. I do not advise it! It requires a certain psychological disposition and a high degree of specialized competency. I’m not saying ‘focused’ investors are smarter. I am saying they must possess the right tool kit, as there is no diversification safety net.

Diversification is a useful and important tool to protect what you have.

But – for the select few, including the DTM5, focus is ‘The Way’.

Here are the wise words of some of the world’s most successful investors on the topic. Enjoy!

Warren Buffett

“Diversification is a protection against ignorance, it makes very little sense for those who know what they’re doing.”

“If you really know businesses, you probably shouldn’t own more than six of them. If you can identify six wonderful businesses, that is all the diversification you need and you’re going to make a lot of money.”

“A lot of great fortunes in the world have been made by owning a single wonderful business. If you understand the business, you don’t need to own very many of them“.

Stanley Druckenmiller

“I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere.”

Charlie Munger

“There are huge advantages for an individual to get into a position where you make a few great investments and just sit back. You’re paying less to brokers. You’re listening to less nonsense.”

“The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple. Diversification is for the know-nothing investor; it’s not for the professional.”

Marty Whitman

“One of the things that is very important to understand is that diversification is only a surrogate, and usually a poor surrogate, for knowledge, control and price consciousness.”

Jim Rogers

“Diversification is something that stock brokers came up with to protect themselves, so they wouldn’t get sued for making bad investment choices for clients. Henry Ford never diversified, Bill Gates didn’t diversify. The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket.”