Concentrated portfolio or diversified portfolio?


If you read what John Templeton says, you will believe that you need to create a diversified portfolio – a little of Japanese stocks, lots of American, some emerging markets, etc. in equity alone. Apart from this some debt – short term, long term, etc.

Warren Buffet on the other hand says you should concentrate your portfolio if you wish to create wealth.

Whom should you listen to?

Both!

You should have a concentrated portfolio – which means in the Indian context, if you have a Rs. 25L portfolio you may not need more than 6 companies. However, once you have created some wealth, you need to protect a portion of it from the vagaries of the market.

Let us take an example. In case you had invested Rs. 10,000 in Wipro in the year 1980, today it would be worth Rs. 350 crores (assuming you consumed all the dividends). However, at various stages you would have sold some part of your wipro shares to invest in other companies too – now if WIPRO had not done well, but some other company in which you invested (say Silverline) had done well, you would have looked smart (but actually you were lucky, simply, lucky).

However if you are still holding on to ALL the shares of WIPRO, it makes sense for you to sell a portion of WIPRO and invest in a simple index fund, some real estate, some rbi bonds, etc.

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One Comment on “Concentrated portfolio or diversified portfolio?”

  1. Ravinder Makhaik Says:

    Subramoney,

    Though you make a case for concentrated portfolio but have done the balancing act by advocating diversified as well as concentrated portfolio by saying that

    ‘Both!’

    Templeton and Warren Buffet models should be adopted.

    For large institutional investors a diversified portfolio can be argued but for a individual retain investors spreading thin would not fetch good returns and would make monitoring that much more labourious


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