Billionaire Charlie Munger Said He Owned Just 3 Stocks — Berkshire, Costco, and Li Lu’s Fund — ‘So Am I Comfortable? Am I Securely Rich? You’re Damn Right I Am.’

“Diversify” is probably the most repeated piece of investing advice around. But there’s a question that usually gets less attention: Diversify into what, exactly?

Billionaire investor Charlie Munger had an unusually simple answer. At the 2017 Daily Journal annual meeting, he revealed that his family’s wealth was concentrated in just three major investments — and he wasn’t losing sleep over it.

“The Mungers have three stocks. We have a block of Berkshire, we have a block of Costco, we have a block of Li Lu’s fund, and the rest is dribs and drabs,” Munger said.

Then came the punchline. “So am I comfortable? Am I securely rich? You’re damn right I am.”

Munger, who died in November 2023 at the age of 99, wasn’t making a case for randomly throwing a portfolio into three stocks. His point was that diversification can serve a different purpose depending on how much an investor actually knows about what they own.

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“Diversification is a rule for those who don’t know anything,” Munger said.

He argued that investors who can genuinely identify outstanding businesses and understand their economics don’t necessarily benefit from spreading their money across dozens of lesser ideas.

“If you’re not a know-nothing investor, if you’re actually capable of figuring out something that will work better, you’re just hurting yourself looking for 50 when three will suffice,” he said. “Hell, one will suffice if you do it right.”

Munger’s Three Big Bets

The three holdings Munger identified were hardly speculative lottery tickets.

Berkshire Hathaway (BRK.A) was the giant of the group. Munger’s longtime partnership with Warren Buffett helped make Berkshire the largest component of his personal fortune, accounting for roughly 90% of his wealth near the end of his life.

Then there was Costco (COST), a company Munger famously adored. He served on its board and once described himself as a “total addict” of the retailer.

The third was Li Lu’s fund, managed by investor Li Lu of Himalaya Capital. Munger held Li Lu in exceptionally high regard and entrusted a significant amount of personal capital to him.

Everything else, by Munger’s own description, was “dribs and drabs.”

The strategy sounds almost reckless when stripped of the context. But Munger believed the real risk wasn’t necessarily owning fewer stocks. It was owning businesses an investor didn’t understand.

Buffett Had a Similar View

Munger wasn’t alone in thinking that way. Warren Buffett has similarly argued that diversification protects investors who don’t have the knowledge or confidence to analyze individual companies. For someone without a particular edge, owning a broad index can make far more sense than trying to pick a handful of winners.

That distinction matters.

Munger’s argument wasn’t that every investor should sell a broad index fund and imitate his three-stock portfolio. It was that concentration can make sense when there is an extraordinary level of knowledge and conviction behind it.

For most investors, that’s a pretty important qualifier.

A person who owns three stocks because they spent years studying those businesses is playing a very different game from someone who owns three stocks because a TikTok video promised easy riches.

Broad diversification can spread the damage when one investment goes badly. Concentration can magnify the rewards when the right businesses are chosen — but it can also magnify the losses when the wrong ones are.

Munger had the knowledge, experience, and fortune to make that tradeoff look simple.

For everyone else, the lesson may be less about owning three stocks and more about knowing exactly why each investment is in the portfolio. After all, “diversify” is easy advice. Knowing what to diversify into is the hard part.