Diversification

Some people out there want to beat the market.

As a result, many try different things, in order to achieve their goals and objectives.

One of these things they try centers around concentrating portfolios.

The book “The Warren Buffett Portfolio“ has some interesting stats on the subject.

They isolated 1200 companies that displayed measurable data, including revenues, earnings, and ROE from 1979 through 1986.

Then they asked the computer to randomly assemble, from these 1200 companies, 12000 portfolios of various sizes.

The portfolios were equally weighted.

They had the following portfolios for which they calculated 10 and 18 year returns: