The Power of Being Small and Focused
Gary A. Scott writing on financial freedom…
Airlines often give long or important flights small numbers. Pan Am’s greatest routes were the two around the world flights Pan Am 1 and Pan Am 2. The piddly flight we take on Delta from our home near Orlando to Tennessee is DA5844.
Look at names. Compare “Adolph Hitler, Führer des deutschen Reiches und Volkes” or “Kim Jong-Il, Great leader Comrade Kim Jong-il Eternal General Secretary of the Party and Guiding Star of the 21st Century” with names of real power, Jesus, Muhammad, Buddha.
Curse words are the same. Smash your finger with a hammer and you’ll probably not shout “Oh Manure” or “Fornicate!” Small four letter words are probably a more likely form.
Then there are even smaller three words of terror, such as IRS, FDA and CIA.
Smaller is more powerful for our investment portfolio as well. There is no specific rule on the number of shares one should have in a portfolio. Common sense says the number should be as small as one can keep track of easily. Stress and our emotional response to activity in our portfolio is one of the leading causes of loss. We all do better with anything when we are – or at least when we feel we are – in control.
Warren Buffett confirmed that too much diversification is not good investing.
“Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
In Buffet’s view, it is better to study one or two industries in great depth and focus on those industries. This creates better profit than spreading a portfolio across a broad array of sectors. Too much diversity reduces risk but also lowers profit.
My portfolio usually remains at less than 20 shares. My indepth study and focus is on the value of stock markets at large. Then I invest in exchange-traded funds around the world. My basic portfolio only has 17 ETFs, held on an equally weighted basis. Each are based on an intense value research. The extra benefit here is that each of those ETFs represents investments in as much as 100 shares. This type of investing holds a small number of shares but represents a much larger range of investments in many countries.
Here is our basic portfolio. The developed countries get 70% of the weighting, divided equally:
- Hong Kong
The emerging countries get 30% of the portfolio weighting, divided equally:
- South Korea
This portfolio is small and focused on value. Our goal is to continually learn ways to find value all over the world but take advantage of this knowledge in an easy, efficient, low cost way.
Editor’s note: Gary A. Scott has been writing on global investment for almost 50 years. He hosts investment workshops and seminars through his website, www.garyascott.com. He spends his time between his farm in North Carolina and his summer home in Florida.