CHAPTER 11SequoiaThe Risks of Concentrated Investing
Your six best ideas in life will do better than all your other ones.
—Bill Ruane
“Tis the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.” This timeless wisdom comes from Miguel de Cervantes's Don Quixote, which was published more than 400 years ago. Spreading your bets around is smart risk management and plain old common sense. A basket of 100 stocks exposes you to less idiosyncratic risk than a basket of just 10 stocks. If you hold 100 stocks, equally weighted, and one goes to zero, all else equal, you will have lost 1%. If you hold 10 stocks, equally weighted, and one goes to zero, all else equal, you will have suffered a 10% decline. ...
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