An Ignorant Idiot’s Guide to Getting Filthy Rich
Andy Snyder|September 19, 2023
What’s the proper level of diversification?
Put another way, how many stocks should you own?
If you turn to the investing greats, the answer may surprise you.
Just one or two, they say.
Warren Buffett says, “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
Billionaire mega-entrepreneur Mark Cuban says, “Diversification is for idiots.”
Even the folks behind some of the biggest funds don’t believe in what they’re selling.
“No hospital wings or college dormitories have ever been named by an indexer,” said the founder of a prominent fund. “They’ve been named by people who invested in one or two stocks and rode them for a period of time.”
So what gives?
Why does traditional money management theory start with the idea that broad diversification is good?
Do the folks behind it think you’re an ignorant idiot who doesn’t have what it takes to get rich?
In a word… yes.
It Gets Worse
Buffett is quick to set himself apart from the masses. He’ll tell you he owns just one stock… and a lot of it.
But he knows the business behind that stock well. He runs it.
The world’s fifth-richest man says his wealth-building approach isn’t for everyone. You have to really know what you’re doing for it to work.
In saying this, he implies that most folks don’t know what they’re doing.
And he’s right.
His business partner, though, takes this aggressive stance even further. He doesn’t take his shot at ordinary investors… but at the models they worship.
“Much of what is taught at modern corporate finance courses is twaddle,” Charlie Munger said. “Modern portfolio theory involves a type of dementia that I can’t even classify.”
According to Munger, you’re not just an ignorant idiot… but a demented one too.
That explains why most folks struggle with the curse of mediocrity. They don’t have Buffett’s skill, time or resources.
But, then again, he wasn’t born with a list of tickers in his back pocket. He doesn’t have some innate ability that you lack. In fact, these days, everyone has access to the very same resources as the best investors.
Modern technology has destroyed the walls that used to keep Main Street investors out.
What Buffett, Munger, Soros and all the greats have in common is a voracious appetite for information… and a patience that would make a lazy turtle jealous.
Cuban – who made a whole lot of something out of a whole lot of nothing – puts it best. “NEVER put your money in something where you don’t have an information advantage,” he says.
“When I buy a stock,” he says, “I make sure I know why I’m buying it. Then I HODL until… I learn that something has changed.”
And “HODL,” if you’re not hip to the term, means “hold on for dear life.”
Do This Instead
So what are you supposed to do?
Well… it depends what you want.
If you want to give Buffett a run for his money, the path is clear. Sell the stocks in your idiotic, diversified portfolio and go all-in on something you know better than anybody else.
But… assuming that a $96 billion nest egg isn’t exactly what you’re going for… and that your significant other would shoot you for going all-in on anything… there are other options.
We offer two sound (and marriage-preserving) pieces of advice.
First… ditch the theory that Munger calls demented.
Modern portfolio theory is outdated, takes a stubborn macro approach and leads to mediocrity… at best.
We point in a different direction. That’s why folks call us the father of the Modern Asset Portfolio. It’s the model we created that serves as the backbone of Manward Letter.
Whereas the old theory was penned in 1952 and has hardly changed since, our model is designed to do what could best be described as “self-upgrading.” The old theory was devised before powerful tools like stock options, ETFs and, of course, Bitcoin created fresh ways to reduce risk outside of reward-reducing ultra-diversification.
If your gut is telling you that you’ve got too many eggs in too many baskets, we invite you to try our model. It’s far simpler. And it is, dare we say, quite snazzy.
Beyond that, though, if you’re really looking to go from good to great, get passionate.
Find one sector of the market that intrigues you above all others… and study the hell out of it. Become the person others turn to.
Master that sector so well that you could start a newsletter and compete with us. We won’t mind. (We might even publish it.)
Focus on real estate… electric cars… or AI. Even boring old bonds can make you super rich if you know more about them than the next fella.
But be patient. Don’t buy when your gut tells you to buy. Buy when your brain is screaming for more.
And one final piece of wisdom…
It’s never too late.
Buffett is 93 years old… and he’s still buying.
Editor’s Note: Think bonds are boring? You won’t after you see what our friend and top income expert Marc Lichtenfeld has uncovered. It’s a way to collect huge income from a completely different kind of investment. It’s NOT options, futures or anything you’ve likely heard about. But it’s produced returns as high as 1,177% in 2 1/2 years… 1,876% in six years… and even 1,984% in three years.
Andy Snyder is an American author, investor and serial entrepreneur. He cut his teeth at an esteemed financial firm with nearly $100 billion in assets under management. Andy and his ideas have been featured on Fox News, on countless radio stations, and in numerous print and online outlets. He’s been a keynote speaker and panelist at events all over the world, from four-star ballrooms to Capitol hearing rooms.