Our portfolios mostly invest in equity market, typically holding between 50 to 120 stocks for different portfolios. This investing approach is against the diversification principles using asset allocation, modern portfolio theory and style box using thousands of stocks/bonds through index funds. Hence our investing approach is often regarded as highly risky.
Can one become successful in investing without using asset allocation, modern portfolio theory, or style box? At least Warren Buffett and John Paulson did.
Warren Buffett’ famous quote on diversification:
Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.
Here is another good quote from Warren Buffett in Berkshire 2010 annual shareholder letter:
Fund consultants like to require style boxes such as “long-short,” “macro,” “international equities.” At Berkshire our only style box is “smart.”
According to this Financial Planning article, John Paulson, one of the most successful money managers in history, has most of his money in gold:
But Paulson, who now has 90% of his personal money invested in either his firm’s gold fund or other gold funds which generated a 35% return last year, has earned more than $12.9 billion in the past three years. The $4.9 billion is a record one-year take, eclipsing the previous record of $3.7 billion in earning he garnered in 2007 after predicting and betting on the U.S. housing market collapse.
We are not aware of any money manager using asset allocation, modern portfolio theory, or style box near as successful as Warren Buffett or John Paulson. Of course, it does not mean we or anyone else will be able to duplicate the sucess of Warren Buffett or John Paulson.