Portfolio Strategy

In the Berkshire Hathaway Annual Letters, portfolio strategy is articulated as a concentration-and-patience discipline rather than diversification for its own sake. The investor’s goal is to buy, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years out. Because only a few companies meet that standard, when you find one you should buy a meaningful amount — and resist straying from your guidelines: “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” Assemble a portfolio of companies whose aggregate earnings march upward over the years, and the portfolio’s market value will follow.

Context: This reflects Warren Buffett’s and Charlie Munger’s preference for a concentrated portfolio of high-quality, durable businesses held indefinitely — a deliberate rejection of the broad diversification favored by efficient-market theory.

Where this appears

• Berkshire Hathaway Annual Letters — Buffett’s prescription to concentrate in a few understandable businesses with rising long-term earnings and hold them for the long term