The Peridot Capitalist: Concentration Explains Much of Buffett's Investment Success

The Peridot Capitalist: Concentration Explains Much of Buffet's Investment Success

Buffet has about 70% of his assets in his top 5 holdings. I have built a concentrated position in the airlines. My belief is that a concentrated position in 5 big carriers is less risky than when I had most of my assets invested as the owner operator of a small business.

On the other hand, Buffet's massive shares of AXP, KO and G are not the same quality stocks as are the airlines.

One can only dream of consistent returns approaching Buffet's. Never-the-less, I am comfortable with a concentrated position in 5 of the legacy carriers. CAL, for example, has lowered its labor costs by about 500 million per year while flying more full planes than ever before. Oil price momentum has slowed. The current price is about the same as it was weeks ago. Fares are increasing. Private jets are being squeezed out of prime landing times and first class seats are being added. New international flights are to everywhere and back.

Modern portfolio theory says one should diversify. Common sense says that if you should invest where you expect a high return.

BUY THE BULL! MONEY IS FLOWING TO STOCKS. THE S&P HAS BROKEN TO A 4 YEAR HIGH. INVESTORS DO NOT HAVE THE WILL POWER TO SIT THE BULL OUT. THE PSYCHOLOGICAL PRESSURE TO JUMP ON BOARD WILL BUILD AS EACH NEW HIGH IS REACHED.