Diversified Portfolio
Why Warren Buffett Prefers Concentration
Stocks can be thought of like a bell curve: some will do poorly, some very well, but most will be average. Warren Buffett’s strategy is to find and focus on the few stocks that will do the best. He believes that by concentrating on these top performers, he can get the highest returns. Since only a few stocks are likely to be top performers, he chooses to concentrate his investments rather than spread them out.
Warren Buffett manages a huge amount of money, which gives him access to resources that regular investors might not have. One big advantage he has is time. Buffett spends all his time studying and analyzing businesses. Over the decades, he has gained a lot of experience and skill in investing, which helps him successfully focus on a few investments. On the other hand, most regular investors have day jobs and can’t spend as much time on investing as Buffett does. So, while they can still learn from his strategies, they might need to find a good balance that works for their own situations.

Retail Investors Don't Have Warren Buffett's Resources or Time

The Risks of Concentration
Following the bell curve idea, as lifelong learners of investing, there’s a risk that instead of picking winners, we might choose losers, which could be disastrous. As retail investors, we are still learning and gaining experience over time. Huge losses might discourage us and make us quit investing too soon. Also, even if we choose correctly, a concentrated portfolio can be very volatile, and many retail investors might find it hard to deal with the ups and downs.
For retail investors, the goal is to remain invested over the long term—throughout the decades leading up to retirement—to harness the power of compounding and grow our wealth.
Diversification is a Smart and Practical Choice for Retail Investors
Diversification in the Philippine Context
We recommend that investors avoid trying to focus too narrowly on picking the very best, or those that fall two standard deviations from the mean. Instead, aim to capture companies on the right side of the bell curve, representing above-average performers, which is a more achievable goal for retail investors. We believe it’s best for investors to build their portfolios gradually. Instead of investing all your money at once, consider buying slowly over time. Aim to eventually hold 10-25 stocks in your portfolio, focusing on stocks that consistently pay dividends. This approach provides a balanced portfolio size, which is a practical and rewarding target for many retail investors.
If you want less to manage, aim for about 10 stocks. If you’re comfortable with more, consider expanding to up to 25 stocks for better diversification. We don’t recommend exceeding 25 stocks for retail investors, as the Philippine market is relatively small and it may be challenging to find that many outstanding companies. Additionally, managing a large number of stocks can become impractical.

Aim to Build a Well-Balanced Portfolio of 10-25 Stocks
Practical Benefits of Diversification
Protection Against Investing Mistakes
Smoother Ride with Less Volatility
Many people underestimate the importance of experience and psychology in investing, focusing only on total returns. However, a highly volatile investing experience can discourage many investors. Our goal is for individuals to remain invested for the long haul and reap the benefits of compounding. Diversification helps create a less volatile portfolio, making it easier for investors to stick with their investments over time and weather the ups and downs with greater resilience.
Balanced Exposure and Adapting to Market Changes
Building Investment Confidence
Keeping Your Portfolio Balanced
Exploring and Experimenting with New Opportunities
Focusing on the Long Term
Diversification allows investors to concentrate on long-term goals without getting sidetracked by short-term market fluctuations. By spreading investments across various types of stocks, such as different industries or market caps, you create a portfolio that can better withstand market volatility. This enables you to stay focused on your future objectives. This practical approach ensures that your investments align with a long-term strategy, taking advantage of compounding growth. It offers a manageable and sustainable path toward retirement, making it more accessible compared to more complex strategies.