Course 501: Constructing a Portfolio
Circle of Competence and Sector Concentration
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

If you are investing within your circle of competence, then your stock selections will gravitate toward certain sectors and investment styles. Maybe you work in the medical field and thus are familiar with and own a number of pharmaceutical and biotechnology stocks. Or perhaps you've been educated in the Warren Buffett school of investing and cling to entrenched, easy-to-understand businesses such as Coca-Cola KO and Wrigley WWY.

Following the fat-pitch strategy, you will naturally be overweight in some areas you know well and have found an abundance of good businesses. Likewise, you may avoid other areas where you don't know much or find it difficult to locate good businesses.

However, if all your stocks are in one sector, you may want to think about the effects that could have on your portfolio. For instance, you probably wouldn't want all of your investments to be in unattractive areas such as the airline or auto industry.

Next: Adding Mutual Funds to a Stock Portfolio >>


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