Beware of the contents in this post!!!!
One of the cardinal rules in investing has been diversification to prevent concentration and correlation of risk!! Currently, I am in serious violation of the rule in a significant portion of the US portfolio on the rule and I am NOT losing any sleep over it.
Will my volatility be higher? The answer is yes. Will there be significantly higher volatility than the rest of the market? The answer is absolutely yes.
But in my book, volatility and risk are not the same. My correlation and concentration are between companies that I consider Fort Knox's of the world and while we may a terrible year because the all the stocks in the sector might go down in a particular year, we are not worried.
Our position derives from our significant exposure to the insurance businesses in the US. A significant piece of our US portfolio rests with four US insurers -- Berkshire Hathaway, Fairfax financials, Markel and AIG.
We expect all these companies to exist 25 years from now playing with their services still being required in the economy. While there might be a year or two, where due to natural catastrophes or bad year in the stock market or regulatory headwinds, we might see a significantly bad years but overall we do not intend to sell any of these four anytime in the near future and are willing to ride through volatility.
We were lucky to buy the companies that were well in discount to their intrinsic value. We bought Berkshire on two occasions when WEB gave a singing endorsement by buying back stock. (We are happy to buy with the same terms as WEB though his cost of capital is lower) We bought Markel at book value right after the Alterra acquisition and Fairfax at discount to book value a couple of years ago. AIG was acquired at 0.5 times book. All were purchased with a margin of safety and run by top capital allocators who will do a tremendous job in a downturn in deploying cash,
We are very comfortable with the management all these four companies and expect them to do very well over the course of the next ten years.
One of the cardinal rules in investing has been diversification to prevent concentration and correlation of risk!! Currently, I am in serious violation of the rule in a significant portion of the US portfolio on the rule and I am NOT losing any sleep over it.
Will my volatility be higher? The answer is yes. Will there be significantly higher volatility than the rest of the market? The answer is absolutely yes.
But in my book, volatility and risk are not the same. My correlation and concentration are between companies that I consider Fort Knox's of the world and while we may a terrible year because the all the stocks in the sector might go down in a particular year, we are not worried.
Our position derives from our significant exposure to the insurance businesses in the US. A significant piece of our US portfolio rests with four US insurers -- Berkshire Hathaway, Fairfax financials, Markel and AIG.
We expect all these companies to exist 25 years from now playing with their services still being required in the economy. While there might be a year or two, where due to natural catastrophes or bad year in the stock market or regulatory headwinds, we might see a significantly bad years but overall we do not intend to sell any of these four anytime in the near future and are willing to ride through volatility.
We were lucky to buy the companies that were well in discount to their intrinsic value. We bought Berkshire on two occasions when WEB gave a singing endorsement by buying back stock. (We are happy to buy with the same terms as WEB though his cost of capital is lower) We bought Markel at book value right after the Alterra acquisition and Fairfax at discount to book value a couple of years ago. AIG was acquired at 0.5 times book. All were purchased with a margin of safety and run by top capital allocators who will do a tremendous job in a downturn in deploying cash,
We are very comfortable with the management all these four companies and expect them to do very well over the course of the next ten years.
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