162 THE WARREN BUFFETT WAY
thinking: “With each investment you make, you should have the courage
and the conviction to place at least ten percent of your net worth in that
stock.”^6
You can see why Buffett says the ideal portfolio should contain no
more than ten stocks, if each is to receive 10 percent. Yet focus invest-
ing is not a simple matter of f inding ten good stocks and dividing your
investment pool equally among them. Even though all the stocks in a
focus portfolio are high-probability events, some will inevitably be
higher than others, and they should be allocated a greater proportion of
the investment.
Blackjack players understand this intuitively: When the odds are
strongly in your favor, put down a big bet.
Think back for a moment to Buffett ’s decision to buy American
Express for the limited partnership, described in Chapter 1. When
threat of scandal caused the company’s share price to drop by almost
half, Buffett invested a whopping 40 percent of the partnership’s assets
in this one company. He was convinced that, despite the controversy,
the company was solid and eventually the stock price would return to
its proper level; in the meantime, he recognized a terrif ic opportunity.
But was it worth almost half of his total assets? It was a big bet that paid
off handsomely: Two years later, he sold the much-appreciated shares
for a prof it of $20 million.
“Be Patient”
Focus investing is the antithesis of a broadly diversif ied high-turnover
approach. Although focus investing stands the best chance among all ac-
tive strategies of outperforming an index return over time, it requires
I can’t be involved in 50 or 75 things. That’s a Noah’s Ark
way of investing—you end up with a zoo. I like to put mean-
ingful amounts of money in a few things.^7
WARRENBUFFETT, 1987