What would you say about a hedge fund that puts 40% of their capital in one stock?

[comagnum]

A hedge fund can take all kinds of risks with their clients $ since their cut of the profits is large and they have no consequences of loses other then having to bring in new clients.

The largest gains by far I ever made was going all in on a stock and holding it for months. I don't do that anymore - maybe I should? (hehe)

That being said - One of the best of all times - Jim Rodgers has this to say:

"If you want to get rich... You have to concentrate and focus," he says. "The expression on Wall Street is, don't put all of your eggs in one basket. Ha! You should put all of your eggs in one basket. But be sure you've got the right basket and make sure you watch the basket very, very carefully,"

 

[777]

Because I just read this off a hedge fund letter

"We might invest up to 40% of our net worth in a single security under conditions coupling an extremely high probability that our facts and reasoning are correct with a very low probability that anything could drastically change the underlying value of the investment."

"40 percent?

So little?

Get out there and trade like real men!"

(Kidding)
_____

Full disclosure to people who are qualified to understand what you are saying is often of key importance to being ethical.

If you believe the other person is not "qualified to understand" extra effort should be made, or sometimes a deal should be passed on.

 

[murray t turtle]

And he later successfully placed 40% of Berkshire Hathaway's worth on American Express during the "Salad Scandal."

Nice the way you made people think by not initially revealing you were speaking about Buffett.

%%
WELL , keeping this on positive plane; worked well with opm[other peoples money] right LOL.
Ross Allen made big bucks milking toxic-killer snakes, doesnt mean i should or any one else should.And to be fair, many big bucks have been made with only one company[>40%].

I do like the way[+ just reread that old news incident] he took advantage of panic sellers.Good points about Rogers co magnum+ never traded the old egg contract myself LOL And a fair question is how many money managers, say over 40 or 44 years young, put 40% of their money in only one thing+ KEEP ON DOING THAT??

 

[schweiz]

there is no answer that covers all scenarios
i would prefer to put all my money in Apple if the other option is to put it in 10 penny stocks.

 

[777]

I was just going to write that activist funds do this sort of things all the time. Buffet is one of them.
From the investors perspective, there is a positive - you know more or less where the money is and why. There is a bit of assymetry risk since, assuming a standard fee structure, you get 80% of the upside and 100% of the downside so it’s like being short a put on 20% of capital. A shrewd manager might be incentivized to put on a more volatile position to take advantage of that option.

Buffett runs things differently than this, though.

His salary is 100 000 a year, win or lose. He gets almost 400 000 more alocated for security and protection. And he has the VAST majority of his wealth in Berkshire stock.

In his early partnership before Berkshire (when he was small and things were softer) Buffett took:

0 percent of capital
25% of profits after the first 6 percent.

 

[777]

From an outsider perspective, there is that. However, I'm more interested in the question: assuming I can beat the market, how much should I put in stocks I really like? According to Buffett, its a fair amount. Way more than most people are comfortable with or would advocate. Perhaps the true secret of Buffett is that he is so comfortable with risk that he found his way to the kelly criterion, while most people are too scared to go there

Over 50 percent of Buffett's beating the market came from his sagely leveraging his insurance float.

Decades ago Munger said (paraphrasing) he was surprised major insurance companies dI'd not copy them.

What I just wrote is so important to understanding how Buffett did what he did that I would like to blurt it out like 100 times.

But what about the other 50 percent of his out-performance?

A slice came from getting situations outside of buying stock in the market that others can not.

But as a stock picker?

Yes... his picks bought in the open market have provided alpha.

What many do not appreciate is how much Buffett's investing has morphed and how truly deep his understanding of what he does is:

Cigar buts, great companies at ok prices, leveraging his insurance float, short term trading, private equity, commodities, derivatives, large loans and bail outs, buying entire companies, tax efficiency, efficient delegation and generalship, not caving to investor perceptions, paying only one dividend because he had good use of, sizing up management.. competence and integrity, "understanding the system", RIisk Management, etc.

The guy is a true mastermind .

 

[777]

%%
WELL , keeping this on positive plane; worked well with opm[other peoples money] right LOL.
Ross Allen made big bucks milking toxic-killer snakes, doesnt mean i should or any one else should.And to be fair, many big bucks have been made with only one company[>40%].

I do like the way[+ just reread that old news incident] he took advantage of panic sellers.Good points about Rogers co magnum+ never traded the old egg contract myself LOL And a fair question is how many money managers, say over 40 or 44 years young, put 40% of their money in only one thing+ KEEP ON DOING THAT??

Buffett had almost all of his personal worth in the trade.

And if the trade went really bad, he still would have had a sizable war chest.

But yes... I am sure Buffett was extra happy the way things went. Winning was not 100 percent.

 

[ironchef]

Over 50 percent of Buffett's beating the market came from his sagely leveraging his insurance float.

Decades ago Munger said (paraphrasing) he was surprised major insurance companies dI'd not copy them.

What I just wrote is so important to understanding how Buffett did what he did that I would like to blurt it out like 100 times.

But what about the other 50 percent of his out-performance?

A slice came from getting situations outside of buying stock in the market that others can not.

But as a stock picker?

Yes... his picks bought in the open market have provided alpha.

What many do not appreciate is how much Buffett's investing has morphed and how truly deep his understanding of what he does is:

Cigar buts, great companies at ok prices, leveraging his insurance float, short term trading, private equity, commodities, derivatives, large loans and bail outs, buying entire companies, tax efficiency, efficient delegation and generalship, not caving to investor perceptions, paying only one dividend because he had good use of, sizing up management.. competence and integrity, "understanding the system", RIisk Management, etc.

The guy is a true mastermind .

If you cannot beat him join him.

One simple way to beat Buffett, is to copy him: Buy BRK but use leverage, like him using insurance floats, to juice your returns. Works on paper but the devil is in the details.

 

[murray t turtle]

Over 50 percent of Buffett's beating the market came from his sagely leveraging his insurance float.

Decades ago Munger said (paraphrasing) he was surprised major insurance companies dI'd not copy them.

What I just wrote is so important to understanding how Buffett did what he did that I would like to blurt it out like 100 times.

But what about the other 50 percent of his out-performance?

A slice came from getting situations outside of buying stock in the market that others can not.

But as a stock picker?

Yes... his picks bought in the open market have provided alpha.

What many do not appreciate is how much Buffett's investing has morphed and how truly deep his understanding of what he does is:

Cigar buts, great companies at ok prices, leveraging his insurance float, short term trading, private equity, commodities, derivatives, large loans and bail outs, buying entire companies, tax efficiency, efficient delegation and generalship, not caving to investor perceptions, paying only one dividend because he had good use of, sizing up management.. competence and integrity, "understanding the system", RIisk Management, etc.

The guy is a true mastermind .

%%
''Short term trading'', that would explain his public anger/outburst @ hedge funds LOL??. Plus Pioneer Benjamin Graham. Some one asked him,''how did you find all those great companies ??'' . Mr Buffet said ''Start with the letter A'' LOL Great quote

 

[777]

%%
''Short term trading'', that would explain his public anger/outburst @ hedge funds LOL??. Plus Pioneer Benjamin Graham. Some one asked him,''how did you find all the those great companies ??'' . Mr Buffet said ''Start with the letter A'' LOL Great quote

His short term trading was years ago, but he did it when he thought it made sense for his investors.

There were many years Buffett literally looked at thousands of companies in a year, starting with the letter A.