I've been covering investment strategies for years, and there's one debate that never seems to die: diversification versus concentration. The conventional wisdom is practically carved into stone tablets at this point — spread your bets, don't put too many eggs in one basket, and for heaven's sake, don't go all-in on a single stock.
And then along comes CAS Investment Partners, casually dropping 80% of their portfolio into... Carvana. Yes, a used car website.
It's enough to make the pinstriped set at traditional wealth management firms choke on their morning coffee.
The numbers are genuinely startling. CAS with their massive Carvana position. Fairholme Capital with nearly 79% in St. Joe. Even supposedly "safe" Apple shows up as the dominant holding for several funds, representing over 60% of their portfolio value. These aren't small operations, either. We're talking about serious money managed by people who presumably understand the concept of diversification but have chosen a dramatically different path.
Look, the thing about extreme concentration is that it creates spectacular winners and spectacular losers. And we mainly hear about the winners, don't we?
Betting the Farm (Literally)
When most financial advisors are busy telling clients to keep position sizes below 5%, these concentrated investors are essentially playing a different sport altogether. I've interviewed several of these managers over the years, and they all share a certain intensity — a conviction that borders on religious fervor.
What's happening here isn't ignorance of risk management principles. It's what I might call (after too many finance conference cocktails) "conviction arbitrage." The market has to hold everything, but individual players can make outsized returns by making massive, informed bets that deviate dramatically from the average.
The key word there? Informed.
When CAS loaded up on Carvana, they weren't just throwing darts. They developed an extraordinarily high-conviction thesis about a business model they believed the market had fundamentally misunderstood. For quite a while, this looked like a disaster — Carvana tanked below $5, and I imagine there were some uncomfortable investor calls. Now with the stock above $110, they're looking like absolute visionaries.
The approach isn't replicable for most people, though. Not by a long shot.
These professional concentrated investors typically have advantages the rest of us don't: deep research capabilities, high risk tolerance, direct management access, and psychological constitutions that would make a Navy SEAL impressed. (I've seen one such manager calmly sip espresso while watching millions evaporate from his position in real-time — it was both disturbing and impressive.)
The Hidden Carnage
Here's what we don't see much of: the concentrated portfolios that imploded.
It's classic survivorship bias. We marvel at the funds that put 80% into Carvana and rode it back from the brink, but we rarely hear about the countless concentrated portfolios that blew up when their single big bet went sideways.
Remember Archegos Capital? Bill Hwang's family office vaporized billions in days because of massive positions in a handful of stocks. Or Neil Woodford, once considered Britain's Warren Buffett, whose concentrated illiquid positions led to a spectacular fund implosion?
These aren't exceptions — they're the natural consequences of concentration risk. For every genius concentrator we profile in the financial press, there are dozens who blew themselves up. They just don't get magazine covers.
The Concentration Contradiction
There's a strange contradiction here that's fascinated me throughout my career covering markets: the greatest wealth creation often comes from concentration, but wealth preservation almost always requires diversification.
Charlie Munger — who knew a thing or two about this topic — once noted that the way to become rich is to find a few great investments and concentrate, while the way to stay rich is to diversify.
For every Warren Buffett with a 40% Apple position (which, let's be honest, is diversification compared to some of these funds), there are countless failed managers who bet everything and lost it all.
So... can you really put half your portfolio in a single stock? Sure you can. Whether you should depends entirely on:
- Your actual edge (not your perceived edge)
- Your time horizon
- Your capacity—both financial and psychological—to absorb catastrophic loss
That first question is the killer. Do you really know something about Apple that thousands of professional analysts have missed? I've met many investors who thought they had unique insights, only to discover they were simply riding the same narrative as everyone else.
Finding Your Balance
For most investors (and I include myself here), extreme concentration probably isn't the play. But there's a middle ground between owning hundreds of stocks and the YOLO all-in bet.
Finding that balance—where you have enough concentration to generate meaningful outperformance but enough diversification to survive being wrong—might be the most important portfolio decision most of us will make.
It's also intensely personal. Your ability to sleep at night matters. Your liquidity needs matter. Your knowledge edge (or lack thereof) matters tremendously.
Then again... someone did put 80% into Carvana and is now looking like an absolute genius.
So what do I know?
