Diversify your portfolio, we hear constantly.
Having a variety of different ASX shares spreads out risk and helps you sleep at night, experts say.
However, it might surprise you to know those same professional investors don’t necessarily practise diversification themselves.
In fact, many will use their in-depth knowledge to put all their eggs in one or two ASX shares that they’re absolutely certain of winning on.
Call it conviction, call it guts, call it what you will.
But the writer has spoken to many fund managers who do this for their personal portfolios, which is completely the opposite of what they advise clients on how they run their fund.
Very few are willing to reveal this publicly though, for fear of burning vulnerable retail investors.
Turning $156,000 into $12 million
One expert who is quite happy to go on the record is Marcus Today founder Marcus Padley.
Padley has claimed more than once that diversification is a false idol.
“In the remote wilderness of portfolio construction, we have a lot of gurus — but there is one religion: it’s called diversification,” he said in a podcast last year.
“It underperforms in the good times, outperforms in the bad times, but it still doesn’t perform anyway.”
The Motley Fool reported last year that one of Padley’s followers had turned $156,000 into $12 million in just 3 years by putting it all in one ASX share.
Many might think this is risky, but Padley reckons it’s the opposite.
“It’s actually less risky because you’ve got your head in the game and you’ve only got one stock to focus on after all,” he said.
“If you were to buy one stock, you’re going to watch every move. You’ll go to every company presentation, get to know the CEO, get to know the other shareholders… You’re going to watch the drivers and pick up on anything that’s relevant to that stock.”
Practising what he preaches
To put his money where his mouth is, in a recent podcast Padley revealed that he himself only owns 2 ASX shares.
One of them is Poseidon Nickel Ltd (ASX: POS), which he has held for “a long time”.
“The CEO is godfather to one of my daughters, hence the faith in the man, who I know really well.”
That chief executive, Peter J Harold, has a track record of turning exploration businesses into producers, and Padley believes Poseidon would follow.
“Poseidon is sitting on a couple of projects that used to produce. It’s just a question of the nickel price rising high enough to make those viable,” he said.
“They expect to be back in production by December this year.”
The Poseidon share price has sunk more than 23% this year.
The second and final stock in Padley’s personal portfolio is Environmental Group Ltd (ASX: EGL).
Padley became interested in this environmental services provider when a trio of former Tox Free executives joined the firm.
“There is more cleanup to be done in Australia that EGL could possibly handle,” he said.
“This is just a question of getting around the technology. It’s not a question of finding things to do.”
Capital H Management founder and chief executive Harley Grosser told The Motley Fool earlier this month that he’s also a fan of EGL.
“The management team is A grade,” he said.
“They’ve done it before at Tox Free — a lot of the institutional fund managers know of [chief executive] Jason [Dixon] and his team, and the stock looks good value to us. So we’d expect it to do well this year.”
The EGL share price is down almost 18% for the year so far.