In 1971, Charlie Munger and Warren Buffett invested heavily in a trading stamp company called Blue Chip Stamps. This is one of Buffett’s and Munger’s early trades, which is documented in some of the best investing books.

At the time, many would have considered putting so much capital into a single business risky. But Munger and Buffett believed that the company’s capital resources were a better trade-off.

Their investments paid off when Blue Chip Stamps became a key part of Berkshire Hathaway’s portfolio. And they used the company’s capital to fund their other investments like See’s Candies, Wesco Financial, The Buffalo Evening News, and Precision Steel.

This experience shaped Munger’s belief that diversification isn’t…