Warren Buffett once said, “Keep all your eggs in one basket, but watch that basket closely”.
The more you think about it, the more you realise that the Sage of Omaha was right. After all, haven’t you noticed that the greatest fortunes in the world are made by highly successful entrepreneurs who literally put all of their eggs in one basket, take Bill Gates (Microsoft), Mark Zuckerberg (Meta/Facebook) and Jeff Bezos (Amazon) to name but a few?
I have also noticed that the greatest fund managers globally have highly concentrated shares portfolios which have nonetheless produced excellent returns for investors over the years. I guess you could modify Buffett’s quote to “Keep a few of your eggs in one basket, but watch that basket closely.” Highly concentrated meaning fewer stocks than the average fund and maybe as little as just a few.
There was a successful UK fund manager called Nomad Investment Partnership run by Nick Sleep and Qais Zakaria. Between 2001 and 2013, they performed an astonishing annual return of roughly 21%, translating to a 921% gain compared to the 117% for the MSCI World Index during the same period. Their plan was to return 1,000% over ten years then close the fund and return the money to their investors. This is exactly what they did having only narrowly failed to achieve a return of 1,000%.
What was unique about them was that their fund was highly concentrated. By the end of their fund’s life, they only owned four stocks. Amazon was their largest holding which represented about 70% of the fund. Costco was another notable investment of theirs.
Bill Miller, a fellow multi billionaire, has personally invested over 80% of his personal investment portfolio in just Amazon and Bitcoin. He is also the biggest individual shareholder in Amazon not named Bezos. Read this Link
Bill Ackman has personally invested in just six shares. He is a multi-billionaire.
Warren Buffett’s Berkshire Hathaway fund had 52% of its investments in just one stock, Apple, up until recently. They have now sold some of their Apple shares but this company still represents about 40% of their fund.
We manage a fairly concentrated portfolio of around 25 shares in our YFS Intelligent Wealth Fund. We would like to have a smaller portfolio but the regulations do not allow us to invest more than 10% of our portfolio in any one stock. So for practical purposes, we average about 25 shares throughout the year. Our 10 largest holdings typically make up 50% of the fund and the next five represented about 25% of it. All of our research has shown that highly concentrated funds achieve superior returns over the long run than traditional funds which typically have portfolios of 50-100 shares. So if you are going to invest in a fund choose a highly concentrated one. You know it makes sense.*
Tony Byrne, Managing Director
If you want to learn more about this topic, please find the link.
More information about our fund the YFS Intelligent Wealth 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.
