Distill Your Investment Choices

A recent story from the excellent Avner Mandelman of Giraffe Capital reminded me, once again, of one of the reasons I became a "focus" investor.

Mr. Mandelman relates a story of a old classmate asking for Giraffe's top ten stocks in 2003. Although Giraffe already ran a focussed portfolio of just 25 stocks, Mr. Mandelman agreed. One year later, the former classmate sent back the results of just those 10 stocks: those ten stocks actually doubled the overall performance of the already focussed portfolio (see link for overall 2003 performance).

Mr. Mandelmans point is to dive into your own stocks to both cull the weaker positions, and to add to those positions holding the best promise.

In fact, I also had a virtually identical experience when I ran the Global Walkers Investment Newsletter in the mid-to-late 1990s. I had two model portfolios, one of which ("The Top Ten"), which was a subset of a moderately larger (typically 20-25 stocks) portfolio. While both portfolios trashed the TSX index (its benchmark) over the two year period I ran them, the Top Ten, like Mr. Mandelmans experience, also doubled the broader model portfolio.

So I concur with Mr. Mandelman: don't be afraid to look in your own backyard for some of the best stock ideas out there. After all, there's already been considerable distilling (hopefully) of your ideas to arrive at those. Just a little further distillation can yield fabulous results!

A foolish diversification is the hobgoblin of little minds, adored by mutual fund managers, brokers and fitful investors alike.

(With all due apologies to Ralph Waldo Emerson)

JW

The Confused Capitalist