Looking at the portfolio as a whole

"Most fortunes have been made in relatively few securities, held for a very long time, by a buyer who understood them."

Most fortunes have been made in relatively few securities, held for a very long time, by a buyer who understood them.

Every position can have been chosen well, one at a time - and the portfolio as a whole can still be poorly diversified, if no one ever steps back to look at it.

Analyzing one company at a time, with the same criteria that work, easily leads to a portfolio where the companies all resemble each other: same style, often the same sector. Looking at the stock category too - Value, Growth, GARP or Speculative - alongside the sector helps you notice whether you're doing this on purpose or by accident.

Building a portfolio isn't a task that's finished the first time: every time you add or remove a position, it's worth rechecking the resulting mix of sectors and categories, not just whether the new idea looks good on its own.

This isn't an argument against diversification itself - it's a reminder that the number of positions, on its own, says nothing about its quality. Twenty-five companies that are well understood, but chosen with the same criteria in the same couple of sectors, behave more like a handful of repeated ideas than a wide fan of independent bets.