Aug 26, 2022
Why the Top Investors do not Diversify & choose to Concentrate their Holdings
BRT S03 EP41 (140) 8-26-2022 – Wealth for Life
Things We Learned This Week
Co-Host: Denver Nowicz, President - Wealth For Life
Denver is an advisor with nearly 20 years experience working with clients in investments and insurance, designing retirement plans with a combo of both. He takes us through different strategies for clients to get the best allocations for their money over the long term. It is the Combo Strategy of both Offense and Defense, the synergy of the mix, not ‘All or Nothing’.
Diversification, is it really as good as the business media claims?
Why the top investors do not diversify and choose to concentrate their holdings including the Oracle of Omaha (Buffett), and his partner Charlie Munger at Berkshire Hathaway are two of the most outspoken critics.
You should be specialized in investing (buy a few good companies), know what you are buying, and monitor your investments closely. The goal is a small concentrated portfolio of well researched investments (5 – 20 stocks).
Indexing – buying the entire index (ie – S&P Index), a fund with low fees, that mirrors the Index, conservative passive approach for average returns
Problem is that this process can underperform the market a little – this is a good plan if an Investor does not want to do the work needed to find the good few companies. There are about 10 – 20% stocks in the S&P 500 Index worth investing in. The Index is made of 50% of mediocre to poor companies.
Zombie Co’s – there are 20% of the Index labeled this way - A “zombie company” is a term used to describe an uncompetitive company that needs a bailout to operate successfully or an indebted company that is only able to repay interest. Simply put, the effective on its debt (interest-coverage ratio of 1 or less).
The top companies (Big tech) are usually carrying the Index and responsible for most of the Index’ returns. Would you rather buy all the houses in a neighborhood, or the few best? Same philosophy in picking the better co’s / stocks to invest in, simply buy what is good and you understand.
Robert’s (of LifePro Asset Mgmt) core philosophy on picking stocks - good companies that are growing, leadership position in their industry, positive cash flow, good balance sheets, and low debt.
Real Diversification is a Combo of Assets –
Baseline / Defense: Insurance, Real Estate, Business Income (Cash Flow), Commodities, Cash – Streams of Income for a safe foundation to cover expenses and retirement
Offense / Growth: Stocks, Crypto, Alt Investments (Private Equity)
Leverage from good (OPM) to bad (debt), and what is the difference. Leverage defined in the financial sense, and how to use it properly. Leverage is just a strategy, if an investment is bad, then leverage magnifies losses.
The idea is to borrow at a low rate (and good multiple like 4:1), earn at a higher rate of return to make $ off the spread (like a bank) – borrow at 3% to invest and earn 8%. Wealthy use Leverage in conservative way, get a lower ROI on more $ money – multiplies rate of return.
Ie – borrow $1 mil to buy rental real estate + invest $250k of your $ (= $1.25 mil invested total), then make $100K at 8% ROI
vs invest $250k of your $ only (= $250k invested total), then make $20k at 8% ROI
This can be done with retirement accounts also – go to https://wealthforlife.net/
Article: Jim Harbaugh, Michigan Football Coach
*** This Show is a Replay w/ Clips taken from:
BRT S02 EP28 2-28-2021 –
Investing Class on Economic Indicators, Diversification, & Leverage w/ Denver Nowicz
Full Show: Here
More Info on WFL and Tax Free Matching: HERE
Wealth For Life Topic: https://brt-show.libsyn.com/category/Wealth+For+Life
Link to Taxes Show on 10/31/2021 w/ Denver: Here
Link to Offense / Defense Show on 6/6/2021 w/ Denver: Here
Link to Shows, Denver was a Guest: Here
Investing Topic: https://brt-show.libsyn.com/category/investing
More - BRT Best of: https://brt-show.libsyn.com/category/Best+Of
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