Focus of Warren Buffett's portfolio

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A recent article on morningstar.com disclosed Buffett's portfolio structure. One thing that contradicts to the public image of him as a value investor is that only small portion of his investments can be classified into value style. According to another research paper, Buffett is "actually a large-cap growth investor."

 

Berkshire's Equity Holdings by Style
	Value ( % )	Core ( % )	Growth ( % )
Large Cap	11	68	9
Mid-Cap	0	12	0
Small Cap	0	0	0

 

Buffett has always favored focusing his investments, arguing that diversification merely protects against ignorance. And diversification may reduce volatility, but it doesn't necessarily reduce risk. The two concepts are often confused. Volatility can actually help reduce risk because it allows more opportunities for a savvy investor like Buffett to load up on an assets when prices are attractive. Buffett argues that the best way to reduce risk is to focus on companies you know extremely well and companies that boast strong competitive positions. If their earnings or share prices happen to bounce around a lot in the short term, who cares?

 

I especially favor this part of philosophy, exactly as what my mom told me. The more I learn finance, the more I feel using fluctuation/volatility as a measure of risks is far from perfect. This is a tough topic to explore. I'm still not quite satisfied with the semi-variance that I'm using in the project, though it makes more sense.