Virtually every investor has heard of Warren Buffett’s success.
And the sheer scale of his success — in dollars and cents — is simply mind-blowing.
In last year’s letter to shareholders, Buffett added up all of Berkshire Hathaway’s returns from the last 59 years, and he shared the number: 3,787,464%.
In other words, he’s earned shareholders enough to turn a $10,000 started stake into more than a third of a billion dollars ($378 million).
In classic Buffett style, he’s surprisingly modest about his success…
He’s the only investor I’ve ever heard refer to multi-million percent gains as “satisfactory results.”
But then he said something else that really stuck with me.
Buffett said that his investing success was “the product of about a dozen truly good decisions” over the years.
This wasn’t just trademark Buffett modesty, either.
Because if you look back over the history of Berkshire Hathaway, you don’t see an endless flurry of trades. You see a handful of truly brilliant investments — like taking over Geico in 1996, or buying the BNSF railway outright in 2008.
And currently, more than 80% of Berkshire’s portfolio is concentrated in just six stocks!
Now, once you understand why Buffett invests this way, it suddenly becomes much easier to beat the stock market by a monstrous margin, as in … the 300-to-1 margin my latest strategy has.
Maximum Profits with Portfolio Concentration
The average Main Street investor has between 20 and 30 stocks in their portfolio.
Motley Fool recommends owning at least 25 for the sake of “diversification.”
And that’s not bad advice either. Diversification can be an outstanding strategy to preserve your existing wealth. If you don’t invest too much in any one stock, there’s not as much to lose.
The opposite is also true though; there is such a thing as being too diversified.
While I was developing my Infinite Momentum Alert system, I conducted an AI-assisted 25-year backtest of stock market performance.
We looked at every possible portfolio configuration, every type of trading strategy, and ultimately found that a portfolio of 10 high-momentum stocks delivered the most consistent market-beating returns.
In fact, by keeping your portfolio concentrated, and exclusively focusing on those top 10 momentum stocks, you could have beaten the market 300-to-1, going all the way back to 1999.
That’s a massive upgrade in performance, and it simply wasn’t possible with a larger portfolio … which makes sense.
If you’re overloaded on exchange-traded funds and are exposed to dozens of different stocks, it gets harder to beat the market by any meaningful margin.
Sure, you might still have a decent year and beat the market 3-to-1…
But if you really want to grow your wealth, then portfolio concentration is key.
It’s better to focus on a handful of the market’s very best stocks, rather than drag along a few “dead weight” stocks, hoping they’ll finally turn things around.
This leads us to the next obvious question: How do we find the handful of outstanding stocks that are worth building a portfolio around?
Fortunately, the answer to that question is the same as it’s always been…
Buy the Business, Not the Hype
In addition to his trademark modesty, Buffett is known for only investing in high-quality businesses.
Where most investors get swept away by hype and excitement, Buffett has always focused on the “brass tacks” of a business.
Is the company’s cash flow positive?
Can it easily afford to pay off its debts?
Are their profit margins expanding or sinking?
This kind of “homework” isn’t exactly exciting, but it’s necessary if you want to figure out what kind of company you’re investing in.
And a surprising number of traders and investors completely overlook these factors.
You’ll frequently hear me mention the concept of Momentum when it comes to stocks. But Momentum doesn’t exist in a void. It doesn’t make sense to buy a stock just because it’s going up.
Value is a critical factor for long-term performance.
Because once you understand what the underlying business is worth, then you can figure out whether shares are overpriced or underpriced — and act accordingly.
But in order for your portfolio to reach its full potential and beat the market by 300-to-1, you’ll need to take one more step…
Fast-Tracking Buffett’s Strategy to Beat the Market by 300-to-1
So it really is that simple.
Warren Buffett became an investing legend by holding a small portfolio of outstanding stocks, and then sticking to his guns through thick and thin.
But as Buffett himself has said, “investing is simple. But not easy.”
As I mentioned before, it took Buffett 59 years to get to where he is today. He spent decades growing his wealth in relative obscurity before ever becoming a celebrity in the financial media.
It was during those early years that Buffett saw some of his BIGGEST gains.
And those gains came from investing in smaller stocks.
He can’t do that anymore, of course. As I explained last week in “Buffett’s Billionaire Dilemma,” the massive size of his fund limits him to just a handful of viable investments. And those mega-cap stocks tend to move much more slowly than their small-cap counterparts.
Once again quoting Buffett, their “size is an anchor to performance.”
Even with a concentrated portfolio, it’s gotten harder and harder for Buffett to beat the market … because in a lot of ways, Buffett is the market.
So when I was building Infinite Momentum Alert, I decided to turn back the clock on Buffett’s formula for success — back to when he primarily invested in small- to mid-cap stocks.
And that was the final piece of the puzzle.
By sticking to a concentrated portfolio of 10 outstanding stocks (all of them either small- or mid-cap), I was able to build a system that brought Buffett’s early success into the 21st century and beat the market 300-to-1.
If you’d like to know more about my Infinite Momentum system, or find out how to get my next recommendation when it goes live next Friday, February 9, just watch this special video presentation.
To good profits,
Chief Investment Strategist, Money & Markets
I read a report written by Charles Sizemore that is no longer listed on the website. It was called Infinite Income. I am intrigued by the strategy but do not see either the report or any similar service.
Can you explain what happened?
Thank you
Dennis