Editor’s Note: Getting in on the biggest trends in the market is one route to investment success. Our good friend Andy Snyder – founder of Manward Press – agrees.
Read on below to see why Andy says it’s time to forget old-school diversification… and instead follow these two simple pieces of advice to get rich in today’s markets.
– Mable Buchanan, Managing Editor
How many stocks should you own?
What’s the proper level of diversification?
If you listen to the investing greats, the answer will 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 of broad diversification?
Do the folks behind it think you’re an ignorant idiot who doesn’t have what it takes to really get rich?
In a word… yes.
It Gets Worse
Buffett is quick to set himself apart from the masses. He’ll quickly tell you he owns just one stock… and a lot of it.
But he knows the business well. He runs it.
The world’s sixth-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 the investor… 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.”
Now you’re not just an ignorant idiot… but also a demented one.
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.
What Buffett, Munger, Soros… and all the greats have in common is a tenacious 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 clearest. “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 by “HODL,” if you’re not hip to the term, he means “hold on for dear life.”
Do This Instead
So what are you supposed to do?
Well… it depends on what you want.
If you want to give Buffett a run for his money, the path is clear. Sell your idiotic, ignorant, 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.
I 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.
I point in a different direction. That’s why folks call me the father of the Modern Asset Portfolio. It’s the model I created that serves as the backbone of my Manward Letter.
Whereas the old theory was first penned in 1952 and has hardly changed since, my model is designed to do what could best be described as “self-upgrading.” The old theory was devised before powerful tools like stock options, exchange-traded funds 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, I invite you to try my model. It’s far simpler. And it is, dare I 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.
Lots of folks have chosen crypto. Their patience has paid off.
Others focus on real estate or electric cars. Even boring, old bonds can make you super rich if you know more than the next fella.
But be patient. Don’t buy when your gut says to buy. No. Buy when your brain is screaming for more.
And one final word of wisdom…
It’s never too late.
Buffett is 90 years old… and he’s still buying.