All In On 2 Investments

Do you know who Bill Miller is? Ask any financial advisor or investment professional who has been in the game for a while and they can tell you. Bill is a legend in the investment industry. Although he is retiring soon from his eponymous firm, Bill is famous for beating the market for 15 years in a row when he managed a value fund at Legg Mason.

I remember listening to Bill Miller being interviewed by Barry Ritholtz 4 or 5 years ago and Bill was giving his recommendation on Bitcoin. He suggested that everyone should have around 1% of their net worth invested in the crypto-currency. Bill still suggests this level of investment to others today. However, in a recent interview, Bill admits to breaking a tenant of financial discipline by having almost half of his net worth in bitcoin and the other half in Amazon stock. What the?!?

This actually isn't too wild when you consider that many of the wealthiest people in our country have extremely concentrated portfolios. Elon Musk with Tesla, Bill Gates with Microsoft, and the Zuck with Facebook (er, Meta), to name a few. Indeed, Mark Cuban once said that "diversification is for idiots." To that end, most investors like Warren Buffet are happy to be "idiots" and own a diversified portfolio of investments. The reason for this is that many of the poorest people in our country have (or had, rather) extremely concentrated portfolios. You don't usually hear too much about the losers, right?

Buffet's suggestion in almost every annual letter to Berkshire Hathaway investors is to invest in a S&P 500 index fund. Specifically, in his 2013 letter, he writes, "[i]n aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”

I would argue that Warren's advice is sound but perhaps overly broad. Everyone has different financial goals and tolerance for risk & portfolio volatility. So, before making investment decisions, it's important to assess your personal financial goals and risk tolerance. There are many tools out there to help with this and many financial advisors out there you can pay to help you. Who knows, maybe it works best for you to go all in on 1 or 2 investments like wild Bill.