Charlie Munger Daily Journal: Diversification Is Losing You Money and Making You POOR!!

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01. the the idea of diversification makes sense to a point if you don't know what you're doing and you want the standard result and not be embarrassed well of course you can widely diversify nobody's entitled a lot of money for recognizing that because it's a truism it's like knowing that two and two equals four and but the investment professionals think they're helping you by arranging a dirt diversification an idiot could diversify a portfolio and or a computer for that matter and and but the whole trick of the game is to have have a few times when you know that something is better than average and invest only where you have that extra knowledge and then if you get just a few opportunities that's enough and what tells you you own three securities and jp morgan chase owns a hundred you know it's what's wrong with owning a few securities warren always says he lived in a growing town and you owned stock in three of the best enterprises in the town isn't that diversified enough the answer is of course it is they're all wonderful places and that fortunes formula which got so famous which was a formula to tell people how much to bet on each transaction if you had an edge and of course the bigger your edge the more close the transaction was to a certain winner the more you should bet and of course there's mathematics behind it but of course it's true it's perfectly possible to buy by only one thing because the opportunity is so great and such a saint or only two or three so the whole idea of diversification when you're looking for excellence is totally ridiculous it doesn't work it gives you an impossible task what fun is it to do an impossible task over and over again i find it agony i just who would want to do it and and i don't see why my father had a client he was a lawyer in omaha he had a client whose husband had a little soap company and the guy died and my father sold the soap company this woman was one of the richest people in town in the middle of depression and what she had was a little soap company in a biggest mansion in omaha's best neighborhood and they sold the soap company she had a mansion in the best neighborhood and 300 000 but 300 000 in 1930 something was an incredible amount of money a little hamburger was a nickel a big hamburger was a dime and the all-you-can-eat cafe in omaha would feed you all you needed to stay alive for two bits a day i mean three hundred thousand well she didn't hire an investment counselor she didn't do it she's a wonderful old woman and she just took that and she divided it into five chunks and she bought five stocks i remember three of them because i probated her estate and it was almost general electric one was dow one was dupont i forgot the other two and she never changed those stocks she never paid any advisor she never did anything and she bought some municipal bonds she never spent her income and she bought some minnesota bonds from time to time with the names by the time she died in the 50s she had a million and a half dollars no costs no expenses i said how did you decide to do that and she said well she said i thought electricity and chemistry were the coming things he just chunked it all in and sat on her ass i always like that little lawn my kind of a girl and but it's rare you know but if you stop to think about think of all the expense and palabra that she didn't have to listen to and all the trouble she avoided and zero costs and of course what people don't realize because they're so mathematically illiterate is if you make five percent and pay two of it to your advisors you're not losing forty percent of your future you're losing ninety percent because over a long period of time that little difference causes a 90 disadvantage to you so it's hugely important for somebody who's a long-term holder not to be paying a big annual toll out of the performance and of course there are a few big time advisors now who are using indexation very heavily and of course they're prospering mightily and of course every time they get somebody it's just agony for the rest of the investment counseling business