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The point is not whether the stake should be big but more what a prudent allocation should be without risking being wiped out in the eventuality that the black swan ever chooses to pay Omaha a visit. Obviously different individuals have different appetite for this risk. Buffett's own test, as I recall, is 10% of net worth for an investment.

Otherwise why not put 100% in Berkshire or better still lever a berkshire stake 2:1 ?

Any leveraged position takes on a risk of its own, whether it is Berkshire or any other company. If you could be wiped out by having Berkshire lose half its share value, then you would be wiped out every 10 or 15 years, which is not a good strategy.

But putting 100% in Berkshire is a fairly safe strategy, I think, compared to putting 100% in the S&P, for instance. Of course, it is very hard to have an operational definition of 'safety', but I would propose the following: a safe investment is one that has a very low probability of losing a large part of the investment, over a long time period. To make this concrete, you could say that you want the probability of a 50% loss over the next 20 years to be less than 1%, for instance. Obviously, if you could do without 2/3 of your capital, in a pinch, but you need your funds in 15 years, you could change your definition accordingly - for instance, you might require a less than 1% chance of losing 2/3 of the market value of your investment in 15 years.

So now, what is the chance of Berkshire losing half its value, in 20 years, compared to a fund which owns the 500 most valuable US companies, say an ETF based on the S&P? You might look to history and say that this has never happened to either of these investments, which of course doesn't mean it couldn't happen. Some would say that the S&P is currently overvalued by about 100-150%, and Berkshire is maybe overvalued by 0-20% (that would be my best guess, for instance). So given that situation, how unlikely is it that the S&P might lose half its value in the next 20 years? I would say, not unlikely at all, maybe a 10% chance, mostly just because of valuation, with a bit of bad luck from timing thrown in. What about Berkshire? It is much more unlikely to lose 50% of its value based on valuation alone, but on the other hand, much more likely to have some company-specific problem. Which is more likely? You could make the case either way, but I would tend to think Berkshire would win this contest, so yeah, 100% Berkshire might be ok. (I only own 10%, down from about 30% as I have gone more and more to cash.)

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