A fresh perspective on value investing

published 27 May 2016

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).

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri