“I don’t want a lot of good investments; I want a few outstanding ones.”
Phil Fisher
The Magnifying Glass Effect: Why I Bet Big on Few
Running a focused portfolio—where you invest in just a handful of carefully chosen companies—boosts your returns because it forces you to back your best ideas rather than spreading capital thin across average ones.
Think of it like gardening: if you water a few strong plants you know will grow big, you’ll get a prize-winning harvest. If you sprinkle that same amount of water over a field of random seeds, you’ll get weeds. When you truly understand a business and see it’s undervalued, betting big on it pays off more than playing it safe with tiny bets. It’s not about ignoring risk—it’s about knowing your stuff so well that you don’t need a safety net of fifty mediocre companies.
“I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
Warren Buffett
Attention Residue
There is a biological reason why managing a massive portfolio leads to worse decisions. Sophie Leroy, a professor at the University of Washington, coined the term “Attention Residue.”
She discovered that when you switch from one task to another—like jumping from analyzing a tech stock to checking a bank stock—your brain doesn’t fully switch gears. A part of your attention remains “stuck” on the previous task. This leftover mental baggage creates a “cognitive switching cost,” or brain lag. If you are constantly monitoring 30 different positions, your brain is in a permanent state of fragmentation. You aren’t just losing time; you are losing the depth of thought required to spot the next big opportunity.
“Investors have been so oversold on diversification that fear of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much in others which they know nothing about.”
Phil Fisher
Pareto Principle
This biological limit aligns perfectly with a mathematical reality known as the Pareto Principle, or the 80/20 rule. In almost every area of life, 80% of your results come from 20% of your efforts.
Investing is no different. If you look at the history of most successful portfolios, the vast majority of the wealth wasn’t generated by hundreds of small wins, but by a tiny minority of massive compounders. If 80% of your gains are likely to come from your top few ideas, why dilute your returns by putting money into your 20th or 30th best idea? As the saying goes, “Keep your eggs in one basket, but watch that basket very closely.”
The Munger Standard: Even the greatest investors of our time rely on this asymmetry. Charlie Munger, the late Vice Chairman of Berkshire Hathaway, famously noted that the secret to Berkshire’s success wasn’t brilliant moves every single day. He said: “If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.“
If you remove the few outliers from Berkshire’s history, the greatest track record in investing becomes merely “average.” The lesson? You don’t need a hundred winners. You need a few, and you need the focus to hold onto them.
The Power of Less
Focused attention acts like sunlight through a magnifying glass. Spread the sun’s rays over a wide area, and they merely warm the surface. Focus those same rays into a tight, intense beam, and they can ignite a fire.
The input (sunlight/capital) remains constant, but the output (heat/returns) surges when directed with precision. A scattered portfolio is like diffused sunlight: it creates average warmth. A concentrated portfolio, managed with deep understanding, is the magnifying glass. It cuts through the noise, minimizes attention residue, and unlocks outsized impact. It’s not just about doing less—it’s about doing less, better.
“The idea of excessive diversification is madness. Wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.”
Charlie Munger