This is another angle on the “how many shares” question.
Over the years I have observed many successful private and professional investors. There have been a very few – including some, but not all, of the investors in Free Capital – about whom I’ve thought “If I ever get bored of investing, I’d be happy for them to manage my money.”
Most of these people have eventually disappointed me. The disappointments have tended to arise because they got stuck with concentrated positions – 10% of one small company, 20% of another – and were unable to react when the world changed against the businesses to which they had made large commitments.
This affects even the very greatest investors. Look at Warren Buffett: large positions in the Washington Post and other print newspapers, businesses which now look a lot like manufacturers of horse-drawn carriages, circa 1900.
Having seen many people whom I greatly admired come a cropper with concentrated positions, I’ve become less enamoured of extreme concentration. Nothing grows forever; most investors come a cropper eventually; and concentrated positions in illiquid shares make it hard to escape from your mistakes.