My Answer To – What Is Your Opinion Of Asset Allocation?

Below is One of Several Questions I’ve Answered On The Premier Crowdsourcing Site In The World, Quora.

Value Investing Journey is dedicated to developing the world’s best value investors. In that vein, I occasionally answer questions related to value investing, finance, learning, mental models, etc., on crowdsourcing site, Quora. I hope you enjoy the question above and answer below.

Below is an answer I wrote on Quora to the above question. The question and answer are important to how we all learn our craft of value investing so I’ve decided to post it here as well.

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When I worked at the Palm Beach Research Group, an investment newsletter, several years ago, there was a team assigned specifically to the task of determining the proper asset allocation model for our subscribers.

This process involved up to a dozen people at times and took dozens of hours to decide on. It made no sense to me to spend this much time on this subject, but I know I’m in the minority here.

I have a far different take on asset allocation than almost 99% of other investors. I pay ZERO attention to asset allocation as a whole, and I’m extremely undiversified in the “normal” sense of the word.

Yes, I know I’m in the minority here. I focus on and pick individual businesses and real estate to buy… So called good to great business / assets by Warren Buffett and other prominent investors.

I’m happy to own these assets for the long term unless something within the asset changes or I miss something in my initial analysis that I find out later, or I find something better to own and put that capital towards. And I pay zero attention to “normal” asset allocation / diversification recommendations.

Why?

Because I know what I’m doing and put in hundreds of hours of research into every asset I end up buying, so I know each intimately.

I believe so little in “normal” diversification, that a couple years ago after several companies I own in the portfolios I manage got bought out, that I owned only 2 companies stock and the rest, or about 80% of those portfolios, was in cash while I waited to find new investments to buy.

My rule for asset allocation / diversification is far simpler than the process I outlined above, that we undertook while I worked at the investment newsletter.

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If something causes me to lose sleep at night, I need to sell it. My thoughts on asset allocation and diversification are as simple as that.

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