Kerryvan, one thing I think you may be underestimating is how your thinking changes (and needs to change) as your portfolio gets larger. 

I do understand this very well. I noticed I'm holding more funds that I would not have held many yrs ago.  In the early 80's I was in gold, and I got out 90% of it due to the swings.  Today, I'm in uupix  which I would recommend for the ave investor.  And the +- 10 % swings don't give me an ulcer. 

Why, because all the other funds provide the balance.  If I only held 10 funds then the daily changes of 10% would be a concern.  BTW only hold this fund in a tax free account.  the drop to $29 a share and the ride to $44  in the past 2 months did not cause a sleepless night.

Nagorak,

It's interesting that you bring up the difference between the Schloss approach of a more diversified value investing, versus Buffett's concentrated style.  And, I think it highlights Buffett's view (mentioned above by oildog) that the amount of diversification one has should roughly track the degree of lack of knowledge one has about one's investments.  That is, all other things being equal, the less you know what you're getting into, the more you should gravitate toward broad diversification.

From what I've read, Schloss was really just implementing a quantitative value approach, not unlike what many value index funds are based on today.  Schloss owned shares in many companies because he knew next to nothing about any of them.  If you were building a portfolio based only on the fact that companies in your portfolio were trading for less than two-thirds of book value, how many would you need to hold to feel comfortable?  Also, all other things being equal, if you found 1000 companies all trading at roughly half of book value, why would you include some to the exclusion of others if all you really know about any of them is this one metric?

On the other hand, Buffett's preferred style of investing is to invest in a very small number of companies where he thinks he understands all the important quantitative and qualitative factors that will affect the long term economic condition and position of those companies.  Given the increased thought about the economic prospects of a company, it doesn't seem unreasonable to put a large percentage of one's wealth into such an investment.  Indeed, this seems like what most small business owners should be doing when they "invest" in such enterprises.

"Putting it briefly, I think it is wrong to assume that concentration in stock investment necessarily means better performance."

What you wrote above is correct.  However, I think the "value" in seeking out concentrated bets is not that it ensures better performance, but that it offers increased odds for outsized gains.  This has nothing to do with personal tastes or predilections; it is simply a matter of probabilities, borne out in history by statistics.

Yes, value investors can do well following a more diversified strategy, but the outliers in performance, both positive and negative, will be those with more concentrated investment portfolios.

'tato
 

kerryvan wrote:
Okay, so I think this discussion is getting a little off track.  In any given asset class I'd own 1-3 funds. LC, MC, SC.  (total 6-9 funds depending on asset base)

This investing method is not consistent with what you said about overlap. If you hold three funds in value and three in growth you have lots of overlap. In addition, holding another three in blend overlaps everything. There is no need to hold blend if you hold value and growth.  Furthermore. Holding three funds in one class means that two are going to underperform the best one. If the goal of using active funds in to outperform, then just pick the best one. Holding nine funds in large cap almost insures you will have a closet index fund.

You miss understood what I wrote,  I'll try to make it more clear...  I would own up to 3 large caps,  up to 3 mid caps,  and up to 3 small caps...  I would look for minimal overlap, so one may be Large cap growth, midcap value, small cap growth..  My total number of funds for US is 6-9 total..

the rest of the discussion was stating the foreign breakdown.

small potato:

"Putting it briefly, I think it is wrong to assume that concentration in stock investment necessarily means better performance."

What you wrote above is correct.  However, I think the "value" in seeking out concentrated bets is not that it ensures better performance, but that it offers increased odds for outsized gains.  This has nothing to do with personal tastes or predilections; it is simply a matter of probabilities, borne out in history by statistics.

Yes, value investors can do well following a more diversified strategy, but the outliers in performance, both positive and negative, will be those with more concentrated investment portfolios.

'tato 

That is a fair point, and I agree.  Personally I prefer a bit more concentrated approach, but not super concentration.  My ideal mutual fund has about 40 holdings, as opposed to 100 or to 20.  Anyway, you're right the more concentration the more chance to deviate both positively and negatively, so it cuts both ways.