François Rochon: Quality over Diversification

In this recent interview, François Rochon, founder of Giverny Capital, shares his insights on optimal portfolio strategy. François emphasizes a balanced and disciplined investment philosophy that prioritizes quality over excessive diversification.

Below are the key takeaways from his strategy:

• Optimal Portfolio Size: Rochon advocates for owning 20 to 25 high-quality stocks. This range strikes a balance between diversification and concentration, offering protection against significant losses while maintaining the potential to outperform market indices.

• Focus on Quality Over Diversification: While diversification is important, Rochon stresses that it should not come at the expense of quality. He recommends focusing on great companies rather than spreading investments across mediocre ones just to achieve diversification.

• Avoidance of Certain Sectors: Rochon’s firm avoids sectors like commodities and natural resources due to their lack of competitive advantages and pricing power. Similarly, he steers clear of heavily regulated industries such as utilities and healthcare segments tied to Medicare or Medicaid, citing their unpredictability.

• Simplicity and Discipline: His strategy revolves around keeping things simple by investing in outstanding businesses, maintaining a manageable portfolio size, and avoiding sectors with inconsistent profitability. This approach ensures both peace of mind and room for portfolio growth.

• Balanced Investment Philosophy: Rochon’s method highlights the importance of finding a middle ground between extreme concentration and over-diversification, combining prudent risk management with the pursuit of long-term success.