Over-concentration:
There is a point where one's position in a stock gets big enough that further buys represent over concentration.
Our last 3 buys put us into an over concentrated position with Gulf Resources.
We'd not advise anyone do that.
While we think it will make for some good profits in the long term, there is no denying the risk.
That risk is not just theoretical.
If the China story comes unglued...sort of like the then emerging U.S. story did in the 1930s, that's a big problem.
Should Gulf Resources management not be of the quality we believe they are, or if they turn out to have been unethical, that's a big problem.
The resulting damage to the accounts would not be theoretical.
So we buy more but in humbleness.
There is not a bone in our body when we bought today that said;
"There, Take that"
"I double dare you to go down any further...We'll buy more with impunity"
We believe it will work out in the time frame we envision but are fully aware of the risk of over concentrating in any stock...or any emerging market for that matter.
We are also aware the market can price it about anywhere it wants [within some reason] in the short run and the chart has suffered damage. It is no STX-ATHR chart at this point.
Some times we take risks that we'd advise [former] clients against rather strongly if we were still in that capacity to do so.
Taking those risks is not some kind of macho thing to brag to others about. If done at all, it should be done with full recognition of the potential real world $$$$$ consequences if the company can't produce continued legitimate growth in revenues and profits [and especially if the reason is flawed management].
Warren Buffett is in a position to kick the tires a bit more with the companies he buys. He gets to look management in the eye, ask them questions, and has the resources to dig deep.
He also buys bigger, more established companies...partly because Berkshire Hathaway is so big, he has to.
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