Warren Buffett Speaks About Diversification

Warren Buffett talks about diversification in this video. So, he says that you should diversify if your goal is not to beat the markets and you are not an experimented investor. Most people should be invested in index funds and not trade. You need only six best ideas, few people got rich because of a seventh best idea. Warren says that he would put 50% in his single best idea. He does not diversify in his personal account.

He is asked how he differentiate Coca Cola from Procter&Gamble. Procter and Gamble is a strong business. Good brands. It has more diversification than Coke has. Procter & Gamble is in his five top businesses. Procter&Gamble doesn't have the pricing power of Coke. He also talks about his like for Gillette. Then, Warren Buffett talks about McDonalds. McDonalds isn't a place where people eat every day. Adults don't want it that often. With Coke though, even adults drink it daily. If adults drink five today, they will drink five tomorrow. Buffett says that Coke is simply a better company. McDonalds is simply selling more than just their product these days. Happy meals and the toy that comes with them are parts of the business. With Coke though, it is simply the product that makes it sell.

Someone asks him what he thinks about the Electric Utility Industry. He doesn't understand where the industry is going to go in the future. He can't see things out 10 years out. If Warren Buffett can figure out where things are going, he would invest in electric utilities. But he simply cannot figure out who is going to be making the money 10 years from now.

This video is Part 8 of 10 videos of this MBA Q&A Lecture with Warren Buffett. Watch Part 9 of Warren Buffett's Lecture.

Warren Buffett Quotes from this Video:

  • Only if you are evaluating businesses and bringing effort, intensity and time would diversification be a mistake.
  • He sleeps well at night knowing that hair is growing on people's faces while they sleep. And women have two legs so it is even better with women. (about Gillette)
  • McDonalds is a terrific business, but not as good as Coke.
Submitted by YouTube Trader on Sun, 04/04/2010 - 13:48

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