“The whole is greater than the sum of its parts.” — Aristotle
While many interpret this quote in a philosophical sense, I personally prefer an alternative interpretation.
I believe concentration with high conviction is the uncomfortable edge for investors.
Warren Buffett’s fortune was built by owning a bigger part of a handful of businesses he understood deeply.
He is someone I consider one of my heroes (as do many others), and he possesses admirable characteristics that most people would aspire to emulate, such as:
- The willingness to look wrong for years
- The emotional discipline to sit through downturns
- The ability to evolve thinking without abandoning core principles
- The humility to admit mistakes
- The integrity to act rationally when others panic
- The courage to be contrarian when necessary
At university, we’re taught that diversification is the only free lunch in finance.
That’s true if your goal is to survive. However, if your goal is to build something meaningful, diversification can become a polite way of “hiding.”
Most of the legendary fortunes in history weren’t built on a 1% position in a hundred different companies; they were built by finding a handful of exceptional businesses and refusing to let go.
Research by Hendrik Bessembinder found that between 1926 and 2016, just 4% of U.S. stocks created all the net wealth in the stock market.
Which means the investment game isn’t about owning everything. It’s about owning the rare few outstanding businesses.
The world’s greatest businesses, the ones with enduring brands, embedded customers and structural advantages — don’t show up every day.
When they do, they deserve attention.
Your time, conviction, courage and patience.
Warren Buffett often says that if you were given a punch card with only twenty slots for a lifetime of investments, you’d likely end up much wealthier.
You’d be forced to wait for the “fat pitches”.
If you were forced to shrink your portfolio to only twenty companies, what would make the cut?
I’d personally start with businesses that are hard to replace and hard to compete with:
The DNA of the Irreplaceable
If you had to shrink your portfolio to just 20 companies today, who would make the cut?
I look for the “Irreplaceables”—businesses that don’t just compete; they dominate through structural inevitability.
- The Uncopyable Infrastructure: You can’t just decide to build 30,000 miles of track to compete with Union Pacific. The land rights and regulatory barriers are fantasy-level difficult.
- The Intellectual Fortress: Think of ASML. They hold a monopoly on the machines that make the world’s most advanced chips. If you want to be in the 21st century, you have to go through them.
- The Ecosystem Trap: Once a global corporation runs its soul on Microsoft or Alphabet, switching isn’t just a hassle—it’s an existential risk. They don’t sell products; they sell the “closed loop” of your daily workflow.
- The Scale Advantage: Amazon and TSMC have built moats out of sheer physical and technical gravity. The bigger they get, the cheaper they operate, making it mathematically suicidal for a newcomer to challenge them.
These businesses don’t just compete. They compound with conviction over a long time.
At the end of the day, wealth isn’t built by owning a little bit of everything; it’s built by owning a few exceptional businesses.
Awet Ghirmay, Head of Investment Research
If you want to learn more about this topic, please find the link here.
More information about our fund can be found here: Hargreaves Lansdown or AJ Bell.
Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
