One of the most common criticisms I hear about my investing style is that it’s “too concentrated.”
The assumption is simple:
More stocks = less risk.
Fewer stocks = reckless.
That idea gets repeated so often that it starts to feel like a universal truth. But like most rules in investing, it only works when you remove context. And once you add context back in, the conversation around concentration changes completely.
The reality is this: concentration itself isn’t reckless. Ignorance is.
Why Most People Misunderstand Concentration
When people warn against concentration, what they’re really warning against is not knowing what you own. They’re picturing an investor who randomly picks two or three stocks, watches them swing wildly, and panics at the first sign of trouble.
That is reckless.
But that’s not concentration — that’s gambling.
True concentration is intentional. It comes from understanding a business deeply enough to accept volatility without confusing it for risk. It’s built on research, patience, and a long-term mindset — not short-term price movements.
Diversification can protect you from ignorance. Concentration rewards understanding.
Concentration vs. Ignorance
There’s a massive difference between holding five stocks you understand and holding thirty stocks you don’t.
Ignorance looks like:
Buying based on headlines
Reacting emotionally to price swings
Not understanding how a company makes money
Selling because sentiment changed
Concentration looks like:
Knowing the business model inside and out
Understanding the key risks before they show up
Being able to explain why the business should be stronger in five years
Viewing volatility as part of the process, not a signal
Risk doesn’t come from position size alone. Risk comes from uncertainty. And uncertainty drops dramatically when you actually understand what you own.
How Understanding a Business Reduces Perceived Risk
The more you understand a business, the less surprised you are by temporary setbacks.
You know:
Where revenue comes from
What drives margins
How management allocates capital
Which metrics matter — and which don’t
That knowledge acts like emotional armor. When the stock price drops, your first reaction isn’t panic — it’s analysis. You’re able to separate noise from signal, headlines from fundamentals.
This is why long-term investors can hold concentrated positions while traders can’t. One is focused on ownership. The other is focused on price.
Real Examples of Concentrated Winners
Many of the greatest long-term investors built their wealth through concentration, not excessive diversification.
They didn’t own “a little bit of everything.”
They owned a lot of their best ideas.
These investors understood that extraordinary results usually come from a handful of great decisions, not hundreds of average ones. Concentration allowed them to benefit fully from compounding instead of watering it down.
Of course, this only works if the businesses are exceptional — and if the investor is disciplined enough to stay rational during uncomfortable periods.
How to Size Positions Responsibly
Concentration doesn’t mean going all-in on a single stock.
Responsible concentration still includes:
Position sizing based on conviction and risk
Understanding correlations between holdings
Leaving room for uncertainty
A core position should be:
A business you understand deeply
Financially durable
Able to survive multiple economic environments
Smaller, higher-risk ideas deserve smaller allocations. High-conviction, durable businesses earn larger ones. Position size is not about confidence alone — it’s about confidence adjusted for risk.
When Concentration Becomes Dangerous
Concentration crosses the line when:
You can’t clearly explain the thesis
You ignore new information that contradicts your view
You confuse loyalty with discipline
You rely on hope instead of fundamentals
No matter how confident you are, concentration requires humility. Businesses change. Management makes mistakes. Industries evolve. Staying concentrated means staying honest — especially when the facts change.
The goal isn’t to defend your positions.
The goal is to own the best businesses for the longest time.
Final Thoughts
Concentration isn’t reckless when it’s built on understanding, discipline, and patience. In fact, for long-term investors, it can be a powerful advantage.
The real danger isn’t owning too few stocks.
It’s owning too many without knowing why.
🔍 How I Think About This in Practice
I use Surmount to build and refine my investing strategy, not to chase ideas.
It helps me:
Filter for high-quality businesses
Compare fundamentals consistently
Build intentional concentration instead of accidental exposure
Surmount keeps my process structured and disciplined — especially when emotions run high.
Disclaimer
This article is for informational and educational purposes only and does not constitute financial advice, investment recommendations, or an offer to buy or sell any securities. All investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. Always do your own research and consider your financial situation, objectives, and risk tolerance before making investment decisions.
