Warren Buffet's low diversification strategy good for small and average investors?

Warren Buffet is a great man and I am a big of him and his investment principles. He puts in lots of wisdom in those few words. However there is one principle of his that I do not fully agree with, or, at the least think is not good for small investors and for starters to follow. That's his "low diversification" strategy!

He espouses the virtue of concentration, rather than diversification, for beating the markets. This is valid but to do that the guy needs to be knowing exactly what he is doing and he needs to have lots of common sense and lots of financial acumen. But how many guys have it? 20%? maybe if you apply the 80:20 principle. That's why I think, and I experienced it first hand as well, diversification is the most important aspect that a guy, who has just started on his investing journey, and small investors, who put in their hard earned money, should follow.

For this category of investors I believe avoiding big losses and disappointments is the key and the only way to do this is through diversification - spreading your money across 30-40 stocks for e.g.. Of course one cannot achieve market beating results with this kind of diversification but one can at least limit downside on their investments. This can be the base that one can build on as they spend few years on the market and pick up the nuances of stock picking. Of course this means that one should spend the time and effort in trying to learn and gain knowledge. If the time and interest is not there then it is better to outsource your money management to a mutual fund manager.

I started investing at the end of 2007, right at the peak of the Indian markets. And I did the mistake of putting in too much money on too few stocks and too quickly. I did them by following analyst's recommendations and by following the technical charts. The result of it is that when the markets crashed my investments were down more than twice the index drop.

I have been trying to learn more about the markets and about stock picking since then. And I am also open to following different strategies to see which works for me and which I am comfortable with. Diversification and periodic investments(weekly) of smaller amounts is something that I am following now and it seems to be working for me - either because it really works or because the markets have been doing well of late. But it certainly does give me time to analyze each of these companies, that I like, in more detail without missing the upside and also limiting the downside.

RK

Warren Buffet mistakes in 2008

List of 50 stocks excluded from NSE futures and options contracts

The following list of stocks have been excluded from NSE futures and options contracts for an year. As per the report

the existing unexpired contracts for the month of and April, May and June 2009 would continue to be available for trading till their respective expiry and new strikes would also be introduced in these existing contract months.

This circular shall be effective from May 4, 2009

3i Infotech Limited

Alok Industries Limited

Amtek Auto Ltd

Aptech Limited

Arvind Limited

Balaji Telefilms Ltd.

Ballarpur Industries Limited

Bata India Ltd

Birla Corporation Ltd

Bombay Dyeing & Mfg Co. Ltd

Central Bank of India

Development Credit Bank Limited

Edelweiss Capital Limited

Escorts Ltd

Everonn Systems India Limited

Gateway Distriparks Limited

Gitanjali Gems Limited

Gujarat Narmada Valley Fertilizer Co. Ltd.

Gujarat Alkalies and Chemicals Ltd.

Havells India Limited

HCL Infosystems Ltd

Hindustan Oil Exploration Co. Ltd

IRB Infrastructure Developers Limited

Jet Airways (India) Ltd.

JSL Limited

Kesoram Industries Ltd.

KSK Energy Ventures Limited

The Karnataka Bank Limited

Lakshmi Machine Works Ltd.

Mahindra Lifespace Developers Limited

Maharashtra Seamless Ltd

MindTree Limited

Monnet Ispat Ltd

MRF Ltd.

Nava Bharat Ventures Limited

New Delhi Television Limited

Network 18 Fincap Limited

NIIT Limited

Peninsula Land Limited

Rajesh Exports Ltd.

Reliance Industrial Infrastructure Limited

S. Kumars Nationwide Ltd

SREI Infrastructure Finance Limited

SRF Ltd.

Strides Arcolab Limited

Thermax Ltd

Torrent Power Limited

TVS Motor Company Limited

UTV Software Communications Limited

Wockhardt Limited

Indian Companies 2008 - 2009 Annual Results on 17th Apr 2009

The following companies have reported their annual and 4th quarter results on 17th April 2009.

SBI Home Finance:- For the full year ended March 2009, net loss reported to Rs 24.63 crore as against net loss of Rs 18.25 crore during the previous year ended March 2008.

GRUH Finance:- For the full year ended March 2009, net profit rose 18.75% to Rs 50.28 crore as against Rs 42.34 crore during the previous year ended March 2008.

Sukhjit Starch & Chemicals:- For the unaudited full year, net profit declined 40.45% to Rs 12.00 crore in the year ended March 2009 as against Rs 20.15 crore during the previous year ended March 2008.

Logix Microsystems:- For the unaudited full year, net profit rose 82.35% to Rs 8.37 crore in the year ended March 2009 as against Rs 4.59 crore during the previous year ended March 2008.

Mysore Paper Mills:- For the unaudited full year, net profit rose 337.35% to Rs 22.13 crore in the year ended March 2009 as against Rs 5.06 crore during the previous year ended March 2008.

Sonata Software:- For the full year, net profit rose 45.43% to Rs 53.36 crore in the year ended March 2009 as against Rs 36.69 crore during the previous year ended March 2008.

Power Finance Corporation:- For the unaudited full year, net profit rose 12.30% to Rs 1355.19 crore in the year ended March 2009 as against Rs 1206.76 crore during the previous year ended March 2008.

ETC Networks:- For the unaudited full year, net profit declined 59.93% to Rs 9.36 crore in the year ended March 2009 as against Rs 23.36 crore during the previous year ended March 2008.

Compuage Infocom:- For the full year, net profit rose 3.74% to Rs 4.44 crore in the year ended March 2009 as against Rs 4.28 crore during the previous year ended March 2008.

Saving money, cutting expenses during recession

I liked to buy the latest editions of popular magazines as soon as they go on sale. Now I save up some money by waiting a month or two and picking up a copy at the nearby library.

Also read "A funny way to cut costs"

RK