Buffett Roasts a Tech Heavyweight Portfolio: 4/10 Risk Warning

Well, looking at this roster, it seems I’ve figured out exactly who you are: you work over at Monolithic Power Systems, and you spend your lunch breaks gambling on quantum computing.

It is always fascinating to look under the hood of a portfolio that has been running hot. You have been at this for a little over five years, and your unrealized gains are sitting pretty at over 300%. Naturally, you might be feeling like a genius right now. But a bull market in technology stocks can make a lot of folks feel that way. When the wind is blowing hard enough, even a turkey can fly.

You have managed to buy a few truly wonderful businesses, but you have buried them underneath a mountain of employer stock and lottery tickets. Let's look at what you actually own, because right now, this isn't a diversified portfolio. It is a massive bet on a single industry, mixed with a weekend trip to the casino.

Charlie Munger and I always kept a massive pile of cash at Berkshire—sometimes more than the folks on Wall Street liked. We did that because cash is the oxygen of investing. When you need it, it is the only thing that matters. Right now, you are running with zero cash reserves. Nothing. Empty pockets. With Treasury yields sitting near two-decade highs, you can actually get paid a handsome return just to wait for a fat pitch. Instead, you have stripped yourself of any ability to buy when Mr. Market gets depressed and starts offering bargains.

Your asset allocation is heavily skewed. A whopping 83% of your money is tied up in the technology sector, almost entirely in North America. To be specific, you own the entire semiconductor supply chain: Monolithic Power, Nvidia, Micron, ASML, and AMD. These are fantastic businesses with real competitive moats—mainly deep intangible assets and patents. Nvidia and Micron have handed you incredible returns, up around 1,300% and 900% respectively.

But semiconductors are notoriously cyclical. Right now, capital is pouring into artificial intelligence, shielding the broader market from some harsh economic realities. If those big tech companies ever slow down their spending, your portfolio is going to catch a severe cold. Furthermore, you own some wonderful, durable consumer and financial franchises—like Apple, Visa, and Microsoft—but you own them in such tiny fractional amounts that they couldn't save your returns if they tried.

🚩 The company store problem. Over half of your net worth is sitting in one stock—your employer's. I see this comes from your employee stock purchase plan and restricted stock units. I understand the temptation to hold it, but tying up 54% of your wealth in the exact same place that signs your paycheck is a recipe for disaster. If the industry hits a wall, you could lose your job and your nest egg on the exact same day.

🚩 Running on fumes. You have zero cash on hand. Without dry powder, you are just a passenger on this ride. When the next market panic hits, you won't be able to buy wonderful companies at steep discounts because every dollar you have is already spoken for.

🚩 Chasing penny stock fantasies. You bought a whole basket of quantum computing flyers—Quantum Computing Inc, D-Wave, Rigetti, and IonQ. Unsurprisingly, these make up the absolute worst performers in your account, chopping your money in half in some cases. You also threw money at AMC and a crypto basket. This is exactly what I mean when I say risk comes from not knowing what you're doing.

🚩 False diversification. You hold 29 distinct positions, but the math tells me your portfolio effectively behaves as if you only own three. Your top three holdings make up nearly 70% of your money. The bottom 15 stocks you own are just clutter taking up space on your brokerage statement.

I give this portfolio a 4/10.

You get points for holding onto Nvidia and Micron during a massive run, but your underlying structure is a house of cards waiting for a strong breeze. Your returns look great today, but the way this is built, you are exposing yourself to an incredible amount of unnecessary risk.

Here is what you need to do on Monday morning:

1. Trim the employer stock. Start selling down your Monolithic Power position. You do not need to sell it all at once, but you must decouple your life savings from your salary.

2. Build a cash reserve. Take the proceeds from that sale and build up a healthy cash position. Get yourself some flexibility so you can act when good businesses go on sale.

3. Clean out the junk drawer. Sell the quantum computing science projects, the movie theaters, and the crypto. Take your losses. Use whatever is left to buy more of the high-quality businesses you already correctly identified but barely own, like Visa or Microsoft.

As I've said many times, a wonderful company at a fair price beats a fair company at a wonderful price. Stop betting on miracles and start protecting the wealth you've been lucky enough to build.