The Controversy Surrounding Buffett’s Diversified Investments: What Financial Advice Does Vitalik Offer?
Vitalik, co-founder of Ethereum, saw someone mention that Bill Gates and the stock god Warren Buffett gave up many of their Microsoft shares and diversified their investments, resulting in a significant reduction in their assets. Therefore, he advised against diversifying investments. Vitalik believes that diversification is good, and he also proposed several financial suggestions. But does the stock god Buffett really endorse a diversified investment portfolio?
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Does Buffett endorse a diversified investment portfolio?
Buffett’s ten-year gamble, no one can beat the market
Vitalik’s investment advice
Buffett and Charlie Munger at the 1996 Berkshire Hathaway Shareholders Meeting
discussed diversified investment portfolios. At that time, Buffett mentioned:
Diversification is meaningless for anyone who knows what they are doing. Diversifying a portfolio is “protection against ignorance.”
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Buffett mentioned that if you know how to analyze companies and evaluate their value, then owning 50 stocks, 40 stocks, or 30 stocks may be crazy because there may not be that many outstanding companies that one person can understand.
Buffett believes that as long as there are three outstanding businesses, it is enough to get good returns in one’s lifetime, provided that they are well understood and it is ensured that bad things will not happen to these three companies. In this way, the performance of these three excellent companies will surpass that of 100 ordinary companies.
From the above discussion, we can conclude that if you have the same profound skills as Buffett and have a good understanding of the companies you invest in, you don’t need a large number of diversified investment portfolios. You only need to focus on a few specialized companies to achieve good investment returns. In fact, 78% of Berkshire Hathaway’s stock portfolio is concentrated in 5 companies, currently focusing on Apple (AAPL-US), Bank of America (BAC-US), American Express (AXP-US), Coca-Cola (KO-US), and Chevron (CVX-US).
However, Buffett highly recommends investing in the overall market ETF for ordinary investors. In 2007, he initiated a century-long gamble, believing that no fund could beat the market in the long run, and only one person, Ted Seides, a partner at Protégé Partners, came forward to bet with him.
In the end, Buffett designated an S&P 500 ETF that achieved a return rate of 125.8%, far surpassing Ted Seides’ 36.3% (from the 5 hedge funds he selected).
Buffett has repeatedly stated in shareholder letters:
For non-professional investors, the best investment target is low-cost index funds.
Vitalik, co-founder of Ethereum, also endorses diversified investments and provides the following financial advice:
Save enough to cover several years of expenses. Financial stability means freedom.
Don’t overly focus on investment portfolios.
Never invest with leverage of more than two times.
It seems that Vitalik is also a prudent investor!
Vitalik
Buffett
Further Reading
Advocating to Return to Cypherpunk! Vitalik’s Ideal Social Model of Blockchain and Ethereum, Integrating Speculation and Development
OP is moving towards Phase 2 of L2, in line with Vitalik’s decentralized roadmap
