Course 501: Constructing a Portfolio
The Bottom Line
In this course
1 Introduction
2 The Fat-Pitch Approach
3 What Do the Academics Say?
4 How Many Stocks Diversify Unsystematic Risk?
5 Non-Market Risk and a Concentrated Portfolio
6 Portfolio Weighting
7 Portfolio Turnover
8 Circle of Competence and Sector Concentration
9 Adding Mutual Funds to a Stock Portfolio
10 The Bottom Line

Modern portfolio theory has been built on the assumption that you can't beat the stock market. If you can't beat the market portfolio, then the best you can do is to match the market's performance. Therefore, academic theory revolves around how to build the most efficient portfolio to match the market.

We have taken a different approach. Our objective is to outperform the market. Therefore, we believe that our odds increase by holding (not actively trading) relatively concentrated portfolios of between 12 and 20 great companies purchased with a margin of safety. The circle of competence will be unique to every person; therefore, your stock portfolio will naturally have sector, style, and country biases. If lacking in any area such as international stocks, a good mutual fund can be used to balance your overall portfolio.

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