The myth of diversification

Adrian Warner
Adrian Warner Avenir Capital

Modern financial theory says that diversification will reduce risk, but how well can you understand a business if it’s one of hundreds in your portfolio? “A lot of people with more diversified portfolios, own a lot of things but know very little about them. We prefer to invest in a small selection of high quality businesses and know a lot about them.” One such example is a Chinese company with a dominant market position, huge barriers to entry, and consistent high returns on capital.

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P Malone

Exceptional investment philosophy, similar to Buffet in his early days

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Mike King

Sorry Adrian, but I bet you practice diversification in your portfolios too. Might not own 20/30 companies but I bet you don't own one company. That's diversification.

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Lin Mal

Well yes, your thinking is sound in that you follow the value philosophy mantra, but what about the sovereign risk of investing in China; I know everyone does it and will do, until there is a problem like a one party state or some of its functionaries 'acquiring' or 'demanding' a share of the proceeds or action. Is there the rule of law that we expect in the west? So how secure is your investment?

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