Profile image
Story Views

Last Hour:
Last 24 Hours:

The Incredible Power of a Focused Portfolio

Tuesday, February 7, 2017 5:51
% of readers think this story is Fact. Add your two cents.
The investment strategy I recommend to my readers, and the one I personally follow, is controversial.
It’s about focusing on a small number of stocks – only your best ideas – and letting them ride.
Most “experts” tell investors to hedge their risk by owning 20 or more stocks. But the effects of a small-portfolio approach can be mind-boggling.
Let me walk you through one example…
This example comes from Murray Stahl, CEO of investment firm Horizon Kinetics. I bring it to your attention because when I read it in 1997, it “wowed” me so much that I’ve never forgotten it.
Maybe it will have the same effect on you.
Imagine the year is 1982, and you have a portfolio with equal dollar amounts in the following six stocks:
General Public Utilities
Pan American World Airways
Massey Ferguson
International Harvester
White Motor
How do you think you would do if we fast-forwarded about 10 years later – to the end of 1993?
Before you answer, let me give you a clue: Both Pan American and White Motor went to zero.
Put another way, one-third of your portfolio would become worthless – a loss of 100%.
And here’s another clue: The S&P 500 would return 17% annually from 1982 to 1993.
Given those two clues, do you think that six-stock portfolio beat the S&P 500?
The surprising answer is… yes.
That six-stock portfolio would return about 19% annualized. And the source of those returns comes almost entirely from just two stocks: Chrysler (which returned 32% annualized) and General Public Utilities (28%).
These two stocks would come to represent 93% of the portfolio.
Stahl writes: “The power of compounding is so remarkable that these two more than compensate for disastrous selections.”
It’s an extreme example. And maybe it’s impractical to expect anybody to stick with a six-stock portfolio untouched for 10 years. Then again, maybe that’s why many investors do so poorly in the market.
In any case, the example shows you what just a couple of big winners can do to a focused portfolio.
Chris Mayer
Editor’s note: Chris Mayer’s Focus is all about building a focused portfolio of smaller companies that have the potential to return 100 times your money. And for a limited time, you can claim one bonus year of Chris Mayer’s Focus – completely free. But don’t hesitate… This presentation – and Chris’ special offer – ends tonight. To find out more, click here.


We encourage you to Share our Reports, Analyses, Breaking News and Videos. Simply Click your Favorite Social Media Button and Share.

Report abuse


Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories



Top Global

Top Alternative



Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.