Whats better Concentrated portfolio or diversified portfolio?

>> Wednesday, January 28, 2009

If you read what John Templeton says, you will believe that you need to create a diversified portfolio - a little of Japanese stocks, lots of American, some emerging markets, etc. in equity alone. Apart from this some debt - short term, long term, etc.

Warren Buffet on the other hand says you should concentrate your portfolio if you wish to create wealth.

Whom should you listen to?


You should have a concentrated portfolio - which means in the Indian context, if you have a Rs 2.5 million portfolio you may not need more than 6 companies. However, once you have created some wealth, you need to protect a portion of it from the vagaries of the market.

Let us take an example. In case you had invested Rs 10,000 in Wipro in the year 1980, today it would be worth Rs 3.50 billion (assuming you consumed all the dividends). However, at various stages you would have sold some part of your Wipro shares to invest in other companies too - now if Wipro had not done well, but some other company in which you invested (say Silver line) had done well, you would have looked smart (but actually you were lucky, simply, lucky).

However if you are still holding on to all the shares of Wipro, it makes sense for you to sell a portion of Wipro and invest in a simple index fund, some real estate, some RBI bonds, etc.- P.V. Subramanyam on MyIRIS.Com