Sometimes, less is more—if you know what you’re doing.

Most of us are taught that diversification is the cornerstone of smart investing. Spread your bets. Don’t put all your eggs in one basket.

And that’s good advice—for most people.

But some of the world’s most successful investors—Warren Buffett, Charlie Munger, Rakesh Jhunjhunwala—have built fortunes using a concentrated portfolio strategy.

Why? Because concentration can maximize conviction, amplify performance, and cut through clutter—if used correctly.

Let’s explore why this high-conviction approach works for some investors, when it makes sense, and how to use it responsibly.

1. What Is Portfolio Concentration?

Portfolio concentration means investing in a small number of high-conviction stocks or funds, instead of spreading capital across dozens of holdings.

• Typical portfolios may have 20–30 holdings

• A concentrated portfolio might have just 5–10

These holdings often carry larger individual weight (10–25%) and are chosen based on deep conviction and long-term belief.

2. Why Concentration Works (for the Right Investor)

✅ Higher Potential Returns

When a concentrated bet pays off, it moves the needle significantly. A multi-bagger in a 5-stock portfolio has real impact.

✅ Clarity of Thought

You’re not tracking 20+ stocks. You’re focused, informed, and engaged with a handful of ideas.

✅ Low Clutter, High Conviction

This strategy rewards research, patience, and boldness—not fear or FOMO.

✅ Better Control and Monitoring

With fewer holdings, you can track performance, business updates, and risks more closely.

3. Real-World Examples

📈 Warren Buffett’s Berkshire Hathaway

Often, 60–70% of the equity portfolio is in just 5 stocks—like Apple, Coca-Cola, and Bank of America.

📈 Rakesh Jhunjhunwala

His biggest wealth creation came from a few concentrated bets like Titan—held for decades.

📈 Indian Mutual Funds

Some focused equity funds (e.g., Axis Focused 25, Franklin Focused Equity) hold just 20–25 stocks for sharper exposure.

4. When Concentration Works

🎯 You Have Deep Knowledge

You understand the businesses, industries, and competitive advantages inside-out.

🎯 You Have Long-Term Patience

You can hold through volatility because you believe in your investment thesis—not the headlines.

🎯 You Monitor Actively

You track earnings, regulatory changes, and macro impacts regularly.

🎯 You’re Not Relying on Short-Term Liquidity

You don’t need to withdraw or react to market swings in the near term.

5. When It Doesn’t Work

❌ You’re New to Investing

Beginners often lack the experience to distinguish a good story from a sustainable business.

❌ You Follow Tips or Herd Mentality

Concentration multiplies both wins and losses. Without research, it becomes gambling.

❌ You Can’t Handle Volatility

With 5–6 holdings, even one bad quarter can cause a 15–20% portfolio drawdown.

❌ You Need the Money Soon

If your time horizon is short, risk control is more important than concentrated conviction.

6. Concentration vs Diversification: A Mindset Shift

7. Should You Concentrate Your Portfolio?

Yes, if:

• You have experience and understand what you’re buying

• You’re willing to monitor your portfolio regularly

• You have a long-term mindset and don’t panic-sell

• You want to maximize returns with a strong thesis

No, if:

• You’re still building your knowledge

• Your time horizon is short or goals are near

• You can’t afford large drawdowns

• You’re more comfortable with automation or SIPs

• 
  

8. Smart Ways to Apply Portfolio Concentration

📌 Core-Satellite Strategy

Keep a diversified core, and apply concentrated bets as your satellite allocation

📌 Focused Mutual Funds

Explore focused equity funds with a 20–25 stock mandate if you want active concentration with professional management

📌 Tactical Concentration

Use it in themes (e.g., EV, digital, infra) for a limited period and amount

📌 Stick to Your Circle of Competence

Only concentrate in businesses or sectors you truly understand

TL;DR — Too Long; Didn’t Read

• Portfolio concentration means putting more capital into fewer, high-conviction ideas

• It can generate higher returns and offer clarity—but also increases volatility and downside risk

• Works best for seasoned, active investors with time, temperament, and deep knowledge

• Most investors are better off blending a diversified core with focused bets on the side

📩 Want to explore whether a concentrated approach could work for part of your portfolio? Let’s assess your goals and see where focused investing can sharpen—not stress—your strategy.