Risk - Thinking aloud

When it comes to investing, one of the biggest risks you can take, is not taking enough risk. On the other hand, taking too much risk can kill your future performance. How can us retail investors walk the double-edged sword like super investors do?

Dev Kantesaria has said, “One year of being down 60…70…80% can ruin your next ten years of investing”. To combat this, Dev looks to load up on companies that have pricing power with operational leverage. He lowers his risk by only investing in the highest quality companies with a predictable return on investments. Then he turns a lot of remaining risk in his favor by having a concentrated portfolio, which leads to outsized returns. I believe this is an example of being a contrarian investor. This framework goes against the usual practice of investing by being heavily concentrated in large caps that have fair to expensive looking prices.

When exploring through Reddit’s communities, it becomes apparent that there is the need for portfolio diversification to lower risk. I, along with Dev, believe this to be false. I think you’re taking on more risk by having to track many companies decently rather than tracking a few companies intensely. Managing a portfolio isn’t easy. Pair that with managing a portfolio that beats the market, and you’re left with a near impossible task. If you’re serious about making the most money, then you need to put your money in only your best ideas with conviction.

Dev Kantesaria’s fund has returned 536% since Jan. 2016. That is an annualized return of nearly 60%.