Concentrated Investing
by Allen Benello, Michael van Biemaand Tobias CarlislePublished by Wiley, £33.99Buy at Amazon
Most investment books treat diversification as an automatic virtue suggesting that you should reduce your risk by spreading your assets as widely as possible. This may work for those who want an easy life; yet several studies and the careers of many of the world's most successful investors show that investing heavily in a few high-conviction ideas can pay off handsomely. Concentrated Investing: Strategies of the World's Greatest Concentrated Value Investors, by Allen Benello, Michael van Biema and Tobias Carlisle, focuses on some of these success stories.
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The book is split into eight sections, each focusing on an individual investor. Some are very well known, such as Warren Buffett and Charlie Munger. Others are more obscure such as Lou Simpson, who works for GEICO, a subsidiary of Berkshire Hathaway, and has a very good track record of his own. Then there's John Maynard Keynes famousfor his writings on economics, and fiscal and monetary policy fewer people realise he was also one of the best money managers of the interwar period.
The book is mostly straightforward and requires no special expertise to understand. However, the third chapter is a bit more involved it focuses on the Kelly formula, a method for determining the optimal amount that a gambler should bet, given the "edge" they have over their market.
While the basic conclusion that you should bet (or invest) heavily when you have an edge, and stay away if not is simple, the maths is quite involved. It would have been better to place this chapter near the end of the book, since it requires a little more effort. However, this is an original approach to both value investing and diversification, and brings a new perspective to some familiar topics.
Concentrated Investing by Allen Benello, Michael van Biema and Tobias Carlisle (Wiley, £33.99).
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