Hey there, my friend!
It’s been a while since my last update, but here we are, keeping the momentum going, step by step. Hope you're having a great weekend! Let’s get that compounding started - this time, it’s all about knowledge.
In today’s letter, we’ll cover:
Overdiversification: Is owning 1,000 companies with a small capital base really a good idea?
Book recommendations: A few gems you might want to add to your reading list.
Podcast picks for when you need some insights on the go.
Let’s dive in!
Overdiversification: How Much is Too Much?
Lately, I’ve been chatting with a few folks - some who stick to just five stocks in their portfolios, while others have 20, 40, even 60.
What really stood out to me was how differently they approach diversification. Diversification’s a popular topic, right? But is more always better?
While exploring this question, I noticed that some investors don’t diversify at all, while others spread themselves thin by owning a little bit of everything.
For those just starting out, there’s some interesting data suggesting that a highly concentrated portfolio can sometimes deliver better returns - assuming, of course, the right stocks are chosen. But hey, no guarantees here.
You might be wondering, “So, how does this help me?” Easy there, cowboy - we’re getting to that.
The thing is, too much diversification can sometimes dilute the impact of your best investments. If you own a tiny slice of 100 companies, it’s hard to feel like you’re really in the game with any of them.
It’s like trying to juggle too many things at once; you could miss the chance to dig deeper and really understand the businesses that matter most.
For example, in my own portfolio, I’ve chosen to focus on two businesses that bring in steady cash flow. Is that enough? It depends. If they’re just coasting along, maybe not.
But if they’re out there acquiring other companies, it’s a different story. Think of a business with 100 acquisitions - it’s almost like a mini-portfolio on its own.
Even Warren Buffett has pointed out that “diversification is protection against ignorance.”
What he’s saying is, if you truly understand the businesses you’re investing in, there might be less need to spread your capital across dozens of different stocks. It’s all about knowing where your strongest convictions lie.
Of course, this isn’t a rule - just a thought worth considering.
Ultimately, there’s no one-size-fits-all approach. It’s all about what makes you comfortable and aligns with your own goals.
Book Recommendations
What It Takes: Lessons in the Pursuit of Excellence
This one’s a bit of a heavier read, but stick with me. I’m still working through it, but it’s a real eye-opener on how M&A (mergers and acquisitions) looks at a higher level.
We always see companies saying, “We acquired X” or “We merged with Y,” but there’s so much more to it. Behind the scenes, it’s all about moving parts - teams negotiating, lawyers drafting pages of contracts, and numbers being crunched.
It’s like a giant, complicated puzzle, and this book gives you a front-row seat to see how it all fits together.
Crazy Rich Asians
Now, I know what you’re thinking. “Seriously? This isn’t exactly a finance book.” And you’d be right. But hear me out: understanding investing isn’t just about numbers - it’s about people, culture, and psychology, too.
And this book gives you a glimpse into Chinese traditions and the mindset of the ultra-wealthy. Call it a crash course in understanding how the ‘Crazy Rich’ think.
You know, even Charlie Munger said understanding different cultures and behaviors can give you an edge. So, consider this your fun homework.
AI 2041
Who doesn’t love a good discussion about AI? I’m a fan - not because it’s trendy, but because of the real impact it’s having. AI’s not perfect (yet), but we’re getting there.
This book takes you on a journey into what our AI-driven future could look like by 2041, backed by scientific reports and stats.
So, grab some popcorn, get comfy, and dive into a world where algorithms might know more about us than we know about ourselves. Sounds exciting, right?
Podcast Recommendations
Value Investing Talks – Episode 9: Rahul Ramaswamy on Creative Accounting in Investing
One of the old episodes of my value investing podcast where I dived into the art (and sometimes dark art) of creative accounting.
Companies often present their financials in a way that looks “just right” - but as investors, we’ve got to know how to see beyond the surface.
In this episode, we dig into how to spot those little tricks that make everything seem rosier than it is. Give it a listen and let me know what you think. Here’s the link: Podcast Episode.
That’s it for now, my friend! Keep learning, keep exploring, and most importantly - keep enjoying the journey.
Investing doesn’t have to be a grind, and it’s not all spreadsheets and reports. There’s a whole world of insights and stories out there, and who knows, the next big idea could come from the most unexpected place.
Catch you in the next one!
By the way, I’ve just launched a referral program to help spread the word and get more people involved.
And to make it even more exciting, I’ve prepared some awesome prizes for those who invite the most people.
You can find all the details and leaderboard info here: https://www.thinkandinvest.com/leaderboard.
Your help in growing this community would be huge. Seriously, it would mean the world to me.
And more importantly, it will help even more people get access to the resources and knowledge they need. Let’s make it happen together!