If I Could Own Only One Stock, This Would Be It
While diversification is a good way to limit risk in your portfolio, there's also the risk of being overly diversified, or diluting one's returns by allocating too much to your 50th-best idea and not enough to your best. Even Warren Buffett has advocated that active investors who own individual stocks might benefit from a "punch card" philosophy, in which an investor only has 20 investments to make in a lifetime, and no more.
While that may be a bit extreme, it can be helpful to ask, "If I only had to own one stock for the next 10 years, what would it be?" Consider the qualities you would look for: defensive, recession-resistant businesses; wide economic moats, a long growth runway, and excellent management, just to name a few.
If only one or a handful of names come to mind, Foolish investors might wish to concentrate more of their portfolios in those stocks, and less in more-speculative stocks or alternative assets.
Source Fool.com
