Working for StreetAuthority, I do a lot of different things.
In the course of a day, I may be writing an article... discussing
potential picks with our staff... researching the next investing
hotspot... even going over
Stock of the Month
article ideas with my colleagues.
And with so much going on, I actually find myself a little frazzled
as the day goes on.
To combat this, I try to get to work about an hour earlier than the
rest of the staff. Sometimes I simply work from home before I get
into the office.
I don't do this to show off, but found I can do more in that one
hour (when I can simply focus on one task without distraction) than
I can in two hours when the rest of the staff has the office
Turning off the background noise allows me to simplify things --
and get better results.
What does this have to do with investing? A ton.
Whydiversification is like drinking from a fire
Sometimes the investing waters are as clear as mud to retail
investors. After all, there are literally thousands of potential
plays out there.
You could try to play a rebound in the automakers. You could
day-trade the banks. You could stick withindex funds and ride out
any storm. You could even try to find companies that are simply
undervalued and will rebound once the market notices.
But the problem is that there are too many options -- it's like
trying to drink from a fire hose. Too many choices make it hard to
nail down the one investment that will make your portfolio a
Instead, like I do every morning by getting an early start, I think
successful investors need to turn off the distractions and focus
their attention to a small group of the best ideas... drink from a
glass, instead of a fire hose.
By shrinking your portfolio, you'll find:
It's easier to stay on top of your investments --
If you have a portfolio of 50 stocks, how well can you pay
attention to each one?
Even if you read up on each one just an hour each week, you'd have
a full-time job (plus 10 hours of overtime) just to give each its
And with this market, it's more important than ever to watch your
holdings. Instead, a portfolio of just 10-12 of your best picks
would need significantly less time to track each week and you'll
likely sleep better at night knowing you've done your homework.
Better portfolio performance --
Which do you think would average higher on a test: an entire class
full of students, or a handful of the smartest students as picked
by the teacher?
The answer is obvious... and it's the same with your portfolio.
Look through your holdings. If you have upward of 30, 40, even 50
holdings or more, I bet you'll find some that you think are simply
"OK." Heck, it wouldn't surprise me if you have some you don't even
like but simply haven't sold yet.
Instead, what if you culled down your portfolio to just your
favorite picks? Wouldn't your portfolio be in much better shape
going forward? You'd have the cream of the crop, instead of the
entire field. Remember, it's hard to outperform the market if your
portfolio is the market.
That you're not alone in trimming down your portfolio
Berkshire Hathaway (NYSE: BRK-B)
holds just 25 publicly traded U.S. stocks. That's a lot for an
individual investor, but for a company with billions at its
disposal, it's surprisingly few. On top of that, Berkshire's top
five holdings make up 73% of its portfolio.
Buffett is simply a proponent for positioning a portfolio to take
advantage of the best picks. He's even gone as far as saying:
"If it's your game,
doesn't make sense. It's crazy to put money into your 20th choice
rather than your 1st choice. It's the 'LeBron James' analogy. If
you have basketball phenom LeBron James on your team, don't take
him out of the game just to make room for someone else."
If the world's greatest investor is following this approach,
shouldn't other investors?
Individual stocks can still do well, no matter the
Buffett's school of thought is one of the main tenets of my
Stock of the Month
newsletter, and its $100,000 real-money portfolio. Think about it
-- oureconomy continues to run hot and cold. Investors are still
skittish about unemployment, interest rates, housing, the Middle
East... the list goes on.
Action to take -->
No matter what's happening, there are always some stocks doing
well. And if you focus on a select group of your best picks, you
Ross Stores (Nasdaq: ROST)
is up 176% since the market hit an all-time peak in 2007...
Dollar Tree (Nasdaq: DLTR)
is up 91%. Auto-parts stores (drivers are keeping cars longer and
doing more of their own maintenance and repairs) are the same
Advance Auto Parts (
is up 83%...
is up 108%.
I understand that years of conditioning has led millions of
investors to think diversification is crucial to success. And it
is, if you want to simply match the market. But that's not what I
strive to do. I doubt you do either.
Remember that I'm not just paying lip service to this idea of
investing in your best ideas. I have $100,000 in actual cash behind
Stock of the Month
portfolio. So far the performance has been great -- 14 of my 15
closed trades gained double-digits. You can get all the details
-- Amy Calistri
Disclosure: Neither Amy Calistri nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.