Sunél’s Blog | Why Buffet is wrong

Sunél Veldtman, | 21 February 2020

You believe in yourself. You have done your homework. You go for it.

Go big or go home, is what they say. After all, Warren Buffett said “diversification is protection against ignorance. It makes little sense if you know what you are doing.”

You think it’s certain.  You are in control. 

You are wrong.

And so is Warren Buffett in this instance.  Many people followed his advice thinking that it meant they should back only themselves or a few well-researched ideas, yet his own company held a widely diversified portfolio of investments.  Clearly, he didn’t follow his own advice.

I’ve been in too many of these conversations before. ‘I believe in the South African story, I must back myself and I don’t need global investments,’ or ‘My company has delivered superior returns on all the portfolio investments. At least I know the risks here. I am not diversifying.’

The world is full of glory stories of people who took big risks, who backed themselves. Just look at the biographies in airport bookshops. However, there are more untold stories about those who have failed, and I have personally seen too many of those play out.

What if you are wrong? What is the price of your failure? How long can you afford to wait for success?

You can back yourself, but be wise about it.  You don’t have to allow failure to ruin you.  Said another way, plan for it to not. How can you limit the fallout? Can you put money into an emergency account before you start a business? Can you take out insurance to ensure your family’s future when their whole future is dependent on your life? Can you take your dividends to build an offshore portfolio?  Can you take time to go for a medical? This is not rocket science, yet it is frustratingly far too common!

You can back yourself….but not only yourself. Yes, diversify.