Charlie Munger Said His Family Only Owns 3 Stocks – 'Damn Right' They're Rich Because Diversification Is For 'Know-Nothing Investors'

The late Charlie Munger, who passed away in 2023 at the age of 99, was a towering figure in the investing world. As Warren Buffett's right-hand man at Berkshire Hathaway, Munger built a legacy of sharp insights and unflinching honesty that continues to resonate. 

One of his most striking beliefs? Diversification isn't always the safety net it's made out to be. As he famously said, "Diversification is a rule for those who don't know anything." At a 2017 Daily Journal annual meeting, Munger laid out why his family only owns three core stocks – and his logic is both bold and eye-opening.

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Let's clarify something right away: Munger wasn't dismissing diversification for everyone. In fact, he acknowledged that for "know-nothing investors" (a term he credits to Warren Buffett), spreading money across many investments is a perfectly reasonable approach. Owning a diversified portfolio through index funds or ETFs is a smart move if you don't have the time or expertise to analyze individual companies. But Munger's point was that diversification can be unnecessary, even counterproductive for those who truly understand the game – those who can identify great companies and hold them for decades.

"I care about the Mungers," he said during that 2017 Q&A. "The Mungers have three stocks. We have a block of Berkshire, we have a block of Costco, we have a block of Li Lu's fund and the rest is dribs and drabs. So am I comfortable? Am I securely rich? You're damn right I am." For Munger, the key wasn't just owning fewer stocks; it was owning the right ones. He had unwavering confidence in his choices, stating that the chances of all three failing were practically zero.

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His philosophy forces investors to rethink what it means to build wealth. Munger believed in focus, not just for simplicity but as a strategy for outperforming the market. "Why diversify when three [stocks] will suffice? Hell, one will suffice if you do it right," he argued. That's not to say picking the "right one" is easy – far from it. It requires deep knowledge, conviction and the patience to ride out market turbulence. But as Munger showed, the rewards can be extraordinary.

This level of concentration might seem radical in today's world of instant gratification and endless financial advice, but Munger's approach reminds us that investing isn't about keeping up with trends. It's about finding opportunities you deeply understand and having the courage to commit to them.

Of course, most of us don't have Charlie Munger's expertise or confidence in navigating the market. That's where the value of working with a financial advisor comes in. A good advisor can help you make sense of your options, find investments aligned with your goals and focus your portfolio without taking unnecessary risks. You don't need to be a Munger to learn from his principles – you just need to start with a clear plan, some quality guidance and a willingness to think long-term.

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