Focus investing is an investing strategy that is contrary to diversification. A focused investing strategy is based on the idea of keeping a close watch on a narrow selection of stocks.
Holding a few stocks in a portfolio allows you to do more research about the particular companies you own. By having a narrow portfolio you have more time to research your investments and acquire specific knowledge about a company than you otherwise could if your portfolio includes hundreds of stocks across different industries.
Focus investors think differently than the majority of other investors. They prefer quality over quantity and only buy the absolute best selections and only after a significant amount of time and money have been spent researching the company and the market.
Focus investors think about the concept of risk differently than most other investors. A focus investor thinks of risk in terms of opportunity cost and loss of initial capital. Focus investors are long term holders of stocks and volatility does not even enter the picture as a form of risk, rather it provides an opportunity to invest at an advantageous price. Focus investors buy companies that they believe will outperform the market over a long time period and they will hold on to the investment as long as it takes, given that the companyâs financial health is still intact.
Warren Buffett is one of the chief practitioners of focus investing. There are a number of other portfolio managers and individual investors that use this approach and many of them have an impressive long term track record.