A portfolio concentrated among a relatively fewer number of well-researched stocks actually offers investors greater prospects for above-average long-term investment results by affording them the opportunity to focus their hard-earned investment dollars on truly outstanding businesses.
It's worth noting that a number of funds have been launched as "best of" portfolios. These investments are offshoots of existing funds with a focus on the flagship fund's largest or most promising holdings.
Although one would think that every holding in a portfolio would reflect a manager's highest level of conviction, the trend to diversify has diminished the likelihood of this occurrence. While I have lingering concerns over the composition of the original portfolios, I strongly view this "best of" strategy as a move in the right direction for realizing long-term investment success.
As someone once said, "Walking a path less traveled can make for an interesting journey." While the benefits derived from just one strong performer can be substantial when a holding is large, I will be the first to admit that the negative impact of a poor performer can offer its own special pain.
Even with the most in-depth research, in stock market investing no one is right all of the time. Yet, over the long-term, the exhaustive research performed and the sheer level of conviction with which each and every investment is made ultimately diminish the likelihood of recurring mistakes and portfolio surprises.
Mellody Hobson, president of Ariel Capital Management in Chicago, is GoodMorning America's personal finance expert. Click here to visit her Web site, Ariel Mutual Funds.com. Ariel associate Matthew Yale contributed to this report.