95% of people haven’t understood a very simple investment principle: Why concentrate your investments?
Simple. Investing is doing business. So you should do it like a business owner: within your circle of competence, truly understand one or two good businesses, then patiently wait for a buying opportunity, concentrate your investment, hold long term, and you can become very rich.
In Charlie Munger’s view, a person has only a few big opportunities in life. Investing is no exception. Good opportunities are extremely rare. Once one appears, you must dare to bet heavily and concentrate your investment.
Two examples will make it clear.
First, why could Munger’s great-grandfather become the richest man in town? Because whenever he had money, he would buy land and rent it out. When the economy was bad and others were selling cheap, he would buy too—and buy even more. See that? Asset thinking, cash flow thinking, and concentrated investment thinking are all embodied in him.
Second, Munger graduated from Harvard. His education is high enough, right? Munger is widely read and has a multidisciplinary mental model. His IQ is high enough, right? But he holds only three companies, and 90% of his net worth is in Berkshire. By contrast, many so-called smart investors among us may never have gone to college and don’t particularly like reading, yet they buy and sell more than three companies every day. Are you like that too? If so, look at Munger. Look at Poor Charlie’s Almanack! Read it several times. Once you truly understand it, you won’t think everything is an opportunity, and naturally you won’t act randomly.
Buying land and renting it out—Munger’s great-grandfather did just this one thing his whole life and lived a wealthy life. Breathing the same air as Berkshire and sharing its fate—Munger also did just this one thing, and then had plenty of time to do what he loved, such as fishing, or building his own yacht by hand.
In a person’s life, truly big opportunities—opportunities that belong to you—are very few. So how do you seize them? The key is to be prepared, always prepared. When those few truly big opportunities arrive, dare to act, act heavily. Catch one, and that’s enough!