Billionaire Focus: Why I Don’t Diversify

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Show NotesIntroduction

• Topic: Answering the question about how to invest $100.
• Scenario: Deciding between diversifying investments or focusing on one stock.

Main Question

• Ken’s Question: Should I diversify $100 into different stocks or invest all in one stock?

Antonio’s Response

• Praise for Asking:
• Good question.
• Important to ask, even though it's tricky.
• Institutional Trading Overview:
• Term: Smart Money (e.g., Warren Buffett, Ray Dalio).
• Institutional Strategy: Focused on traditions, signals, and market movements.

Antonio's Personal Strategy

• No Diversification:
• Belief: Does not believe in diversification.
• Example: Jeff Bezos (Amazon), Steve Jobs (Apple), Elon Musk (Tesla)—none of them diversified, they focused on one business.
• Stocks Philosophy: Treat stocks as one business, focus on 5 main stocks rather than diversifying.
• Personal Approach: Picks 2-5 stocks and keeps reinvesting.
• Method: Repeatedly hedges bets within those chosen stocks.

Antonio’s Justification for His Approach

• Mindset: Thinks like a billionaire.
• Example: Even when picking different stocks, it’s still one focused investment strategy—no broad diversification.

Otis’ Response

• Diversification or Not:
• Depends on Intent: What is your goal for investing the $100?
• Trading Class Focus:
• Example: With $100, if stocks are over $50, you can only get one share.
• Reinvestment Strategy: Invest in one stock, take profits, reinvest gains, and grow over time.

Otis’ Long-Term Strategy

• Diversified Approach:
• Waits for opportunities, rides out market corrections, aiming for steady 7% annual growth.
• Example: Diversified over time to maintain wealth while taking advantage of short-term opportunities.

Trading Mindset

• Single Position Focus:
• Reason: Only trade one stock at a time to manage it carefully.
• Automating: Though Antonio plans to automate, traditionally, it's about focusing on one position.
• Mindset: Avoid holding on to losses by maintaining discipline after losses.

Antonio’s Closing Thoughts

• Diversity in Stocks:
• No belief in true diversification.
• Criteria for Stocks: Only focuses on high-liquidity stocks, which limits the need for diversification.
• Quote: "Nobody's ever got rich from diversity."

Otis’ Perspective on Stock Selection

• Stock Fundamentals:
• Long-term investing involves emotional attachment to certain companies based on their fundamentals.
• With trading, it doesn’t matter what stock you choose as long as it has liquidity and moves.

Otis’ Strategy

• Trading Process:
• Buy low, sell high repeatedly.
• All stocks behave similarly on a trading basis.
• Ken’s Question:
• It exposed Antonio’s unconventional belief of not diversifying.
• While Otis follows a more traditional approach, Antonio maintains a focused strategy thinking like a billionaire.
• Ken’s Initial Question: Should I invest $100 in one stock or diversify it across multiple stocks?

Antonio’s ResponseInitial Reaction

• Good Question: A necessary question but one that exposes Antonio's unconventional view.
• Institutional Trading Definition:
• Institutional Trading: Smart money (Warren Buffett, Ray Dalio).
• Strategy Focus: Institutional investors follow specific signals and patterns.

Antonio’s Investment Philosophy

• Against Diversification:
• Philosophy: Antonio doesn’t believe in diversification.
• Billionaire Examples:
• Jeff Bezos (Amazon): Focused on one business.
• Steve Jobs (Apple): Focused on one business.
• Elon Musk (Tesla): Focused on one business.
• Focus: Antonio applies the same principle to his stocks, treating them as one entity.
• Example: He chooses a few main stocks and focuses all energy there, not spreading investments too thin.

Mathematical Focus

• Hedging Bets:
• Antonio focuses on maximizing chances by staying within a narrow set of investments.
• The more he stays in that area, the higher his chances of winning.
• Mindset: Moving investments too much spreads out the chances of success, reducing the likelihood of consistent wins.

Trading Approach

• Antonio’s Method:
• Prefers to make one trade at a time, sometimes two, but only for short durations.
• Uses automation and stop losses for checks and balances.
• Finds two trades stressful, showing his personal investment mindset.

Real Estate Strategy

• Real Estate Investment:
• Antonio uses the same strategy in real estate as in stocks.
• Numbers Focus: Looks at real estate purely through financial metrics, not emotional attachment.
• Example: Analyzes real estate properties without visiting them, similar to reading stock charts.
• Comparison: Real estate dividends are equivalent to stock dividends (rent = dividends).
• Investment Duration:
• Stays invested in real estate long-term, unlike stocks where he’s quick to exit.
• Doesn’t favor fix-and-flip strategies, preferring buy-and-hold unless needing fast cash due to financial circumstances.

Emotional Management & Trading

• Controlling Emotional Balance:
• Describes himself as constantly balancing emotional extremes.
• Reality Check: Claims to always be internally stressed, even though it doesn’t show outwardly.

Self-Awareness & Investment Strategy

• Self-Awareness:
• Acknowledges personal chaos, compensates with systematic, practiced behaviors.
• Fear of Poverty: His background of poverty drives him to create security systems in his investments to avoid financial ruin.
• Systems: Implements strict financial systems to silence self-doubt and manage emotional triggers.
• Saboteur Awareness:
• Recognizes that his self-sabotage is as powerful as his investment skills.
• Believes that everyone’s “saboteur” is as genius as their positive traits.

Antonio’s Financial Systems

• Automatic Systems:
• Sets up systems to automatically exit trades if they drop by 30%.
• Reason: Antonio's ego pushes him to stay in trades too long, so the system protects him from himself.
• Experience: Has blown up accounts before and learned from these mistakes.

Otis’ Trading Advice

• Diversification vs. Single Stock:
• Context: Otis emphasizes that diversification depends on the investor’s goal.
• Trading Approach:
• Suggests focusing on one stock at a time for short-term trades.
• Emphasizes careful management of each stock to maximize profit potential.

Long-Term Investments

• Otis' Approach:
• Takes a long-term view on companies he believes in.
• Emotional Investment: Feels connected to companies with strong fundamentals and good management.
• Difference Between Trading and Investing:
• Trading: Involves quick movements in and out of stocks, often not attached to the company.
• Investing: Focuses on long-term growth based on company fundamentals.

Final Thoughts on Ego and Strategy

• Antonio’s View on CEOs and Investors:
• Believes CEOs and investors share narcissistic traits.
• CEO Mindset: Constantly thinks they can improve things, even when systems are working.
• Investor Mindset: Investors believe their money deserves to generate returns and seek opportunities for it to grow.
• Systematic Approach:
• Systems are essential to control emotional impulses and prevent reckless decisions.
• Diversification is possible but Antonio prefers a narrow focus with one trade at a time.

Conclusion

• Final Summary:
• Antonio’s investment approach is driven by his experience, fear of past poverty, and desire to control his financial future.
• Balance: Combining systematic checks with emotional control to avoid sabotaging his own financial success.
• Gratitude: Thanks the group for the conversation and suggests more discussions in the future.