Do Warren Buffett and Mark Cuban Really Believe That Diversification Is for Lazy Investors?

Mark Cuban: “Diversification is for Idiots.”

Important note: If the headline is changed, and drops the Cuban quote, I am including it in a box here for the article lead. But if the quote is preserved in the article, we can delete it here…  

“Diversification is for idiots.”

– Mark Cuban

“Diversification is protection against ignorance. It makes very little sense if you know what you are doing.” 

– Warren Buffett

Honestly, I was offended by these quotes.

As the manager of a diversified commercial real estate fund, I couldn’t disagree with Mr. Buffett and Mr. Cuban more.

David Zalubowski – Associated Press                                                     Politico 3/02/15

Yet Buffett is my investing hero, and we model a lot of our investing strategy after his, so I couldn’t just write him off. I was perplexed.

This is important because I am writing a book on Warren Buffett. It’s titled “Warren Buffett’s Rules for Real Estate Investors.” I am reviewing famous Warren Buffett principles and considering how they apply to real estate. Here’s a link to a few of the concepts:

So anyway, when I came across this link, I was offended. Irritated. I thought I had finally found something in the business realm I disagreed with Mr. Buffett on.

Then I looked a little closer and thought more deeply about this.

Buffett’s Berkshire Hathaway, if it’s anything, is diversified. Berkshire Hathaway, one of the greatest performing companies and a Fortune 500 top 10 firm, has outperformed almost everyone for the past 57 years since Buffett took the helm.

With a 30.6 million percent ROI, Berkshire Hathaway could lose over 99% of its value—literally—and still outperform the S&P 500 over the same period. Who could beat Buffett’s record? $100 invested with Mr. Buffett in 1965 would be worth about $3 million today.

https://www.ngpf.org/blog/investing/question-of-the-day-how-much-would-a-100-investment-in-warren-buffets-company-in-1964-be-worth-in-november-of-2020/

Berkshire’s diversification stretches from insurers to ice cream, from planes to trains, and from underwear with fruit on the label to phones with fruit on the back. And over a hundred more.

So, after considering this, not only was I offended, but I was also confused. Buffett apparently loves diversification…so how could he say this?

Let’s look a little closer at Mr. Buffett’s life…Warren Buffett is hyper-focused. The first day he met Bill Gates at dinner, he and Gates, two of the wealthiest guys on the planet, agreed that deep focus is the key to success. (Both of them concluded this independently. Take note, Left Fielders!)

Buffett’s life is boring. He virtually never takes appointments, phone calls, or Zoom meetings. He only has a computer to play Bridge, one of his few pastimes. He spends hours a day poring financial reports, multiple daily newspapers, endless company earnings reports, and more.

He is intensely focused, and his time and efforts are not diversified. Berkshire Hathaway’s time and actions are not diversified either. They are one of America’s largest companies, yet they only have 26 or so employees in their Omaha headquarters.

Think about that. A headquarters of a massive company with only 26 people on staff. No PR person, no marketing department. Lean and mean. A 1990’s era website. Highly focused. So, what’s up with this diversification thing?  

The Key to Buffett’s Diversified Success

The key to Berkshire’s success and the reason he believes diversification is for idiots (in my humble opinion) is this: Buffett is all about deep expertise. Buffett is all about becoming a master at one’s trade. And Buffett relies on a diverse team of managers who are those deep experts.

In his recent (2022) annual Berkshire Hathaway meeting, Buffett said: “The best thing you can do is to be exceptionally good at something,” Buffett said. “Whatever abilities you have can’t be taken away from you – they can’t actually be inflated away from you.”

Buffett invests with 58 wholly owned subsidiaries, plus 63 holdings in other companies. Every one of these companies is managed by a pro. Someone with blinders on. Someone who doesn’t chase shiny objects. A team of people with profound, specialized, hyper-focused knowledge of their craft, their product, and their company.

For these individuals, diversification would be idiocy. For example, if Dairy Queen started making signs for their 5,700 locations, that would be foolish diversification.

If Clayton Homes started managing RV parks and making loans for self-storage, that would be foolish diversification.

If See’s Candies started a paper mill to make the cardboard boxes for their candy, in my estimation, this would be foolish diversification.

Idiocy. Diversification is for idiots. I get it now. And I am pretty sure that’s what Buffett meant when he said this.

A Few Relevant Examples

If Olympian Michael Phelps somehow magically decided he wanted to win 23 gold medals, he could have taken a diversified strategy like some Olympians of 100 years ago. He could have done the shotput. Javelin. High jump and long jump. Multiple running events.

Phelps could have diversified. 

But he didn’t. He wasn’t an idiot in Cuban’s language.

Michael Phelps stayed in his lane, literally. Michael Phelps stayed in the pool and remained hyper-focused on multiple swimming events. He won a gold medal in the 200-meter butterfly. The 200-meter freestyle. The 200-meter medley. The 100-meter butterfly. And a lot more.

But all these were in the water. All of these resulted from Phelps’s hyper-focus. He swam 80,000 meters a week. He trained twice daily, for five to six hours per day. Combined, he swims and lifts weights for four hours a day and runs for two hours a day! And at some point in his childhood, he realized he could get 14% more training by training seven days per week, so he did that, too.

For Michael Phelps, diversification would have been idiocy.

But think about it. As Americans, we got to share in his glory.

We were able to diversify.

We were able to enjoy Michael’s 23 gold medals. But we were also able to watch and enjoy and glory in victories by the 2008 U.S. All-Around Gymnastics champion Nastia Liukin. The 2012 U.S. women’s basketball team. The 2016 U.S. Men’s BMX champion, Connor Fields.

We, as Americans, chose diversification. Just like Buffett chose a diversified strategy of experts within Berkshire Hathaway. Does that make sense?

To take this Olympic analogy a little bit more, let’s think about a different strategy for us as Americans…imagine we had taken Buffett’s comment at face value and applied it to our enjoyment of the Olympics. Imagine we thought it would be necessary to not diversify, but only watch one event. Imagine we had only watched the swimming events, or even just one swimming event.

We would have missed out on the joy and fun and glory of hundreds of other events over Phelps’ five Olympic appearances, from 2000 to 2016.

But we didn’t do that. We got the joy, and the benefit, and the glory of diversified Olympics. We enjoyed the pleasure of diversification and benefitted from the expertise of hundreds of highly skilled, hyper-focused athletes. Each one focusing in on their craft. Each one following Buffett’s strategy. While we followed Berkshire Hathaway’s bigger-picture diversification strategy.

Voila! Magic!

I went on a fishing trip to Alaska recently, so this was on my mind. Think about this…who will likely succeed in the fishing trade? Someone who generally knows how to fish but randomly tries this, that, and the other spot…versus…someone who fishes for the same species in the same location for years. Even decades. This person knows the time of day to go. The depth to fish at. The types of bait to use. The species in the area. The ideal temperature and time of year.

More importantly, the type of bait for the temperature and time of year at the proper depth at the ideal time of day for the right fish.

It’s the specialist who will succeed. But we don’t have to be specialists to savor that salmon.

How Does This Apply to My Investing?

I used to be a certified shiny object chaser. I flipped houses, flipped waterfront lots, did rent-to-own homes, rented out duplexes, and built two realtor websites. I built seven houses (big mistake for me), developed a subdivision, developed and operated a ground-up multifamily facility, helped build a Hyatt Hotel, and much more. I have forgotten some of it.

Honestly, I was not building wealth during those years. I was doing a lot of transactions. I was struggling up a lot of learning curves. I was an idiot, in Mr. Cuban’s words! J

I have taken a lot of Buffett’s teachings to heart. In this case, I have designed our firm, Wellings Capital, to follow in Buffett’s Berkshire Hathaway footsteps.

One reason I love Left Field Investors: they share the same passion and belief.  

Wellings Capital invests in self-storage, mobile home parks, RV parks, multifamily, light industrial, and opportunistic retail deals. We are not experts in any of these fields. But we are hyper-focused. What are we focused on?

We are focused on finding experts in each one of these realms. We are focused on performing due diligence to find the very best operators and asset managers in each of these arenas. We put often little-known operators through a grueling 27-point checklist before we consider investing with them.

We say “no” a lot more often than we say yes. We continually strive to partner with the best of the best, and one of our criteria is that they stay focused. So we can broadly diversify.

This helps us. This helps our families. This helps our investors. This lowers our stress levels. And it’s produced safety and satisfying returns across multiple recession-resistant asset classes.

And our investors don’t have to be Buffett’s idiots, either. Our investors typically have full-time jobs, families, and enjoy the lives they want to live. Some of them are enjoying retirement.

They don’t have the time or the knowledge to build a team of people with deep expertise across each of these asset classes.

But with one investment of $50,000 or more, our investors get diversification across multiple asset classes, geographies, operators, strategies, and properties. Each investment is acquired and managed by an expert. Each expert, like Michael Phelps, stays in their lane. All of us, like Olympic fans, get to benefit from their efforts.

Left Field Investors know this is the best way to invest. Investing with those who are true experts…and going wide across a broad array of them. This is why we exist. And this is why many of you are here.

— Jim and the Team at Left Field Investors

I love focus. And I love diversification. And I think Mr. Buffett does, too.

I wouldn’t invest any other way.

This article is for educational purposes only and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision. All investments involve the risk of loss, including the loss of principal. Past performance, and any performance results reflected in this article, is not an indication of future results.

[1] https://www.ngpf.org/blog/investing/question-of-the-day-how-much-would-a-100-investment-in-warren-buffets-company-in-1964-be-worth-in-november-of-2020/

Chris Franckhauser

Vice President of Strategy & Growth, Advisory Partner

Chris Franckhauser, Vice President of Strategy & Growth, Advisory Partner for Left Field Investors, has been involved in real estate since 2008. He started with one single-family fix and flip, and he was hooked. He then scaled, completing five more over a brief period. While he enjoyed the journey and the financial tailwinds that came with each completed project, being an active investor with a W2 at the time, became too much to manage with a young and growing family. Seeing this was not easily scalable or sustainable long term, he searched for alternative ideas on where to invest. He explored other passive income streams but kept coming back to his two passions; real estate and time with his family. He discovered syndications after reconnecting with a former colleague and LFI Founder. He joined Left Field Investors in 2023 and has quickly immersed himself into the community and as a key member of our team.  

Chris earned a B.S. from The Ohio State University. After years in healthcare technology and medical devices, from startups to Fortune 15 companies, Chris shifted his efforts to consulting and owning a small apparel business when he is not working with LFI (Left Field Investors) or on his personal passive investments. A few years ago, Chris and his family left the cold life in Ohio for lake life in the Carolinas. Chris lives in Tega Cay, South Carolina with his wife and two kids. In his free time, he enjoys exploring all the things the Carolinas offer, from the beaches to the mountains and everywhere in between, volunteering at the school, coaching his kids’ sports teams and cheering on the Buckeyes from afar.  

Chris knows investing is a team sport. Being a strategic thinker and analytical by nature, the ability to collaborate with like-minded individuals in the Left Field Community and other communities is invaluable.  

Jim Pfeifer

President, Chief Executive Officer, Founder

Jim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth.

Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors. Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts.

He has invested in over 100 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships. Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Chad Ackerman

Chief Operating Officer, Founder

Chad is the Founder & Chief Operating Officer of Left Field Investors and the host of the LFI Spotlight podcast. Chad was in banking most of his career with a focus on data analytics, but in March of 2023 he left his W2 to become LFI’s second full time employee.

Chad always had a passion for real estate, so his analytics skills translated well into the deal analyzer side of the business. Through his training, education and networking Chad was able to align his passive investing to compliment his involvement with LFI while allowing him to grow his wealth and take steps towards financial freedom. He has appreciated the help he’s received from others along his journey which is why he is excited to host the LFI Spotlight podcast and share the experience of other investors and industry experts to assist those that are looking for education for their own journey.

Chad has a Bachelor’s Degree in Business with a Minor in Real Estate from the University of Cincinnati. He is working to educate his two teenagers in the passive investing world. In his spare time he likes to golf, kayak, and check out the local brewery scene.

Ryan Steig

Chief Financial Officer, Founder

Ryan Stieg started down the path of passive investing like many of us did, after he picked up a little purple book called Rich Dad, Poor Dad. The problem was that he did that in college and didn’t take action to start investing passively until many years later when that itch to invest passively crept back up.

Ryan became an accidental landlord after moving from Phoenix back to Montana in 2007, a rental he kept until 2016 when he started investing more intentionally. Since 2016, Ryan has focused (or should we say lack thereof) on all different kinds of investing, always returning to real estate and business as his mainstay. Ryan has a small portfolio of one-to-three-unit rentals across four different markets in the US. He has also invested in over fifty real estate syndication investments individually or with an investment group or tribe. Working to diversify in multiple asset classes, Ryan invests in multi-family, note funds, NNN industrial, retail, office, self-storage, online businesses, start-ups, and several other asset classes that further cement his self-diagnosis of “shiny object syndrome”.

However, with all of those reaches over the years, Ryan still believes in the long-term success and tenets of passive, cash-flow-focused investing with proven syndicators and shared knowledge in investing.

When he’s not working with LFI or on his personal passive investments, he recently opened a new Club Pilates franchise studio after an insurance career. Outside of that, he can be found with his wife watching whatever sport one of their two boys is involved in during that particular season.

Steve Suh

Chief Content Officer, Founder

Steve Suh, one of the founders of Left Field Investors and its Chief Content Officer, has been involved with real estate and alternative assets since 2005. Like many, he saw his net worth plummet during the two major stock market crashes in the early 2000s. Since then, he vowed to find other ways to invest his money. Reading Rich Dad, Poor Dad gave Steve the impetus to learn about real estate investing. He first became a landlord after purchasing his office condo. He then invested passively as a limited partner in oil and gas drilling syndications but quickly learned the importance of scrutinizing sponsors when he stopped getting returns after only a few months. Steve came back to real estate by buying a few small residential rentals. Seeing that this was not easily scalable, he searched for alternative ideas. After listening to hundreds of podcasts and attending numerous real estate investing meetings, he determined that passively investing in real estate syndications was the best avenue to get great, risk-adjusted returns. He has invested in dozens of syndications involving apartment buildings, self-storage facilities, resort properties, ATMs, Bitcoin mining funds, car washes, a coffee farm, and even a Broadway show.

When Steve is not vetting commercial real estate syndications in the evenings, he is stomping out eye diseases and improving vision during the day as an ophthalmologist. He enjoys playing in his tennis and pickleball leagues and rooting for his Buckeyes and Steelers football teams. In the past several years, he took up running and has completed three full marathons, including the New York City Marathon. He is always on a quest to find great pizza, BBQ brisket, and bourbon. He enjoys traveling with his wife and their three adult kids. They usually go on a medical mission trip once a year to southern Mexico to provide eye surgeries and glasses to the residents. Steve has enjoyed being a part of Left Field Investors to help others learn about the merits of passive, real asset investments.

Sean Donnelly

Chief Culture Officer, Founder

Sean holds a W2 job in the finance sector and began his real estate investing journey shortly after earning his MBA. Unfortunately, it could not have begun at a worse time … anyone remember 2007 … but even the recession provided worthy lessons. Sean stayed in the game continuing to find his place, progressing from flipping to owning single and multi-family rentals to now funding opportunities through syndications. While Sean is still heavily invested in the equities market and holds a small portfolio of rentals, he strongly believes passive investing is the best way to offset the cyclical nature of traditional investment vehicles as well as avoid the headaches of direct property ownership. Through consistent cash flow, long term yield and available tax benefits, the diversification offered with passive investing brings a welcomed balance to an otherwise turbulent investing scheme. What Sean likes most about the syndication space is that the investment opportunities are not “one size fits all” and the community of investors genuinely want to help.

He earned a B.S. in Finance from Iowa State University in 1995 and a MBA from Otterbein University in 2007. Sean has lived in eight states but has called Ohio home for the last 20+.  When not attending his children’s various school/sporting events, Sean can be found running, golfing, shooting or fly-fishing.

Patrick Wills

Chief Information Officer, Advisory Partner

An active real estate investor since 2017, Patrick Wills’ investing journey began like many others – after reading the “purple book” by Robert Kiyosaki. Patrick started with single family rentals, and while they performed well, he quickly realized their inability to scale efficiently while remaining passive. He discovered syndications via podcasts and local meetups and never looked back. He joined Left Field Investors in 2022 as a member and has quickly become an integral part of the team as Vice President of Technology.

An I.T. Systems Engineer by trade, he experienced the limitations of traditional Wall Street investing firsthand in his career and knew there had to be a better way to truly have financial freedom.

Unfortunately, that better way is inaccessible to those who need it most. His mission is to make alternative investments accessible to everyone who seeks to take control of their financial future and to pursue their passions in life.

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