Should I Put All My Money in One Stock?

Q: What should I do when facing "Should I Put All My Money in One Stock That Is Going Up"?

Tempted to concentrate your entire portfolio in a single hot stock The excitement of watching a single stock soar can be intoxicating, and concentration feels like the fast track to wealth. Warren Buffett himself famously concentrates his portfolio -- but here is the critical distinction he makes: concentration only works if you truly know what you are doing. For most investors, that bar is extraordinarily high. Buffett has spent over six decades studying businesses. He reads hundreds of annual reports, understands dozens of industries, and has a network of bu

What the Masters Would Say

The excitement of watching a single stock soar can be intoxicating, and concentration feels like the fast track to wealth. Warren Buffett himself famously concentrates his portfolio -- but here is the critical distinction he makes: concentration only works if you truly know what you are doing. For most investors, that bar is extraordinarily high.

Buffett has spent over six decades studying businesses. He reads hundreds of annual reports, understands dozens of industries, and has a network of business relationships that provides information advantages unavailable to individual investors. When he concentrates, he does so with a depth of knowledge that few people on earth possess. The question to ask yourself honestly is: do you have comparable knowledge about the company you want to bet everything on?

Howard Marks reminds us that both the ignorant and the overconfident lose money. Concentration magnifies returns in both directions -- it makes your winners bigger, but it also makes your losers catastrophic. Joel Greenblatt compares uninformed stock picking to running through a dynamite factory with a lit match. The downside scenario with concentrated positions is not just underperformance -- it is permanent loss of capital.

Charlie Munger offers a more nuanced perspective. He believes that for investors who have done extraordinary homework on a small number of businesses, concentration is rational. The key word is extraordinary. Reading a few articles or watching a stock go up for six months does not constitute the kind of deep analysis that justifies putting all your money in one position.

Benjamin Graham, Buffett's own teacher, was explicit about this: the margin of safety principle requires diversification as a second line of defense. Even the best analysis can be wrong. Unexpected events -- fraud, regulatory changes, disruptive competition -- can devastate any individual company regardless of how carefully you analyzed it.

Here is a practical framework for sizing your positions:

Your Action Plan

1. Before concentrating in any single stock, ask yourself: have you read the last three annual reports? Do you understand the competitive advantages? Can you independently value the business? If the answer to any of these is no, you are not concentrating based on conviction -- you are gambling on momentum.
2. Start with a smaller position, perhaps 5-10% of your portfolio. If your thesis proves correct over time, you can always add more.
3. Even for your highest-conviction ideas, consider capping any single position at 20-25% of your total portfolio.
4. Maintain at least 8-12 positions across different industries to protect against company-specific and sector-specific risks.
5. Remember that diversification is not a sign of weakness -- it is an acknowledgment that the future is uncertain, which it always is.

The Bottom Line

Concentration builds wealth when you are right. Diversification protects wealth when you are wrong. You need both.

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Last Updated: 2026-02-12

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