Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths

BUNK 32

CONCENTRATE TO BUILD WEALTH

Another old stock market saw “everyone knows” is: You must concentrate to build wealth, diversify to protect it. And that’s true! Concentrating can be great for building wealth. But sometimes it’s deadly. Many folks follow some rule of thumb, like, “Never hold more than 5 percent of your portfolio in one stock.” Most folks know holding one or just a few stocks is risky. You can certainly get big returns (building wealth), but you can also get whacked (destroying wealth). But whether it’s appropriate for you to concentrate or diversify has to do with which road to riches you’re on—that makes all the difference.

Taking Stock in Your Employer

In my 2008 book, The Ten Roads to Riches, I defined different ways the super-wealthy reliably got that way. Winning the lottery was out—you can’t plan on that. But you can plan to become a land baron, manage other people’s money, or get a good job and save and invest wisely—three of the ten roads.

Starting your own business is another road—the richest road of all. The world’s wealthiest are largely founder-CEOs—folks who routinely flout the 5 percent rule. Like Bill Gates, Jeff Bezos, and Michael Dell—billionaires all, and nearly their entire net worths are and have been their firms—nearly 100 percent in one stock.

And what about Charlie Munger? He’s not CEO of Berkshire Hathaway, but he’s built himself into a billionaire (worth $1.55 billion¹) being Warren Buffett’s right-hand man. In The Ten Roads to ...