"Concentration builds wealth, diversification preserves it"
What if...
Concentration simply increases the range of outcomes?
=> Bigger winners & bigger losers
What if...
Concentration simply increases the range of outcomes?
=> Bigger winners & bigger losers
For some people this realization is enough to skip extreme concentration & diversify.
Others read the same message as "I will get concentrated AF but only pick the good stocks."
But can you, ex ante?
Others read the same message as "I will get concentrated AF but only pick the good stocks."
But can you, ex ante?
Makes me wonder how valuable the stories about investors who "got there" through hitting big with a concentrated portfolio really are?
Is it on average a path to outperformance?
Or or we just not hearing enough about the concentrated investors with miserable outcomes?
Is it on average a path to outperformance?
Or or we just not hearing enough about the concentrated investors with miserable outcomes?
Inspired by @scuttleblurb & scuttleblurb.com/cvna2/
Open-ended growth stories like $CVNA, $SHOP, $OKTA have a wider range of outcomes than steady GDP+ growers.
Most of the expected return is concentrated in the top end of outcomes.
Open-ended growth stories like $CVNA, $SHOP, $OKTA have a wider range of outcomes than steady GDP+ growers.
Most of the expected return is concentrated in the top end of outcomes.
Even if (hypothetically) expected returns are the same, you won't get 25%+ IRRs with $WDFC, while you might with $OKTA.
And just like with portfolio construction, this dynamic encourages some people to go for high risk, potentially high reward.
And just like with portfolio construction, this dynamic encourages some people to go for high risk, potentially high reward.
Is it any different from Bryn Kenney putting half of his net work into that one poker tournament because he knew he was gonna win it?
Easy way to potentially "outperform": use bad bankroll management.
Increase variance, increase range of outcomes.
Easy way to potentially "outperform": use bad bankroll management.
Increase variance, increase range of outcomes.
Follow-up podcast on the different return profiles of swinging for the fences vs buying the steady slow grower:
(and more!)
(and more!)
https://twitter.com/scuttleblurb/status/1297134611571458050
Is "letting your winners run" just a way to increase portfolio concentration + incorporate a little momentum trade?
It will produce bigger winners & bigger losers. The bigger winners will say "letting your winners run" is the way to go.
Thoughts?
It will produce bigger winners & bigger losers. The bigger winners will say "letting your winners run" is the way to go.
https://twitter.com/walt373/status/1312160902154645505
Thoughts?
"We believe academic concepts around "proper" diversification can be out of touch with today's winner-take-all industrial dynamics"
Sign of the times?
Shot. Shot. Shot. Chaser.
Sign of the times?
Shot. Shot. Shot. Chaser.
"Survivorship bias.... roll back the clock 15 years and the companies that would have generated “all the returns” look different than those of today, and many have performed poorly since then"
h/t locked acc
h/t locked acc
https://twitter.com/RobinWigg/status/1391630892947451904
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