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My strategy up to this point has been to put all of my investment money in one or two investments that I think are excellent. Whether this be a hot stock or a piece of real estate or a business or whatever. I've been taking my whole pile and shoving it behind ventures I see as outstanding.
I'm 25 and a professional poker player...I embrace calculated risk taking.
This article reinforces my position:
Recently in the Portfolio thread somebody suggested this was poor.
Anybody care to weigh in on either side of this?
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Well, you are a pro poker player. Do you embrace playing for your entire bankroll at a single game, no matter how fishy you think it is? Why would you manage your portfolio less expertly than you handle your bankroll?
Actually I don't totally disagree with the approach, I in fact have a goal to get my portfolio down to 5 stocks. It never happens, due to the vagaries of relative prices to value ratios of what I'm holding and what I can buy. But I'm around ten stocks now, and have three stocks that are over 50% of my portfolio.
But I spend all day every day researching stocks. Expecially reresearching my existing holdings. I don't own any "hot stocks". Everything I own is cheap in relation to it's true value, so I limit my downside risk carefully. My "bankroll management" strategy ensures that worst case, if I totally whiff on my research and have a position go to zero, I can't lose more than 20-25% of my portfolio.
In reality, most stocks have almost zero chance of total loss, so I'm typically taking the risk of a 10-15% loss from a single position dropping by half or more before I discover my mistake. One exception is that I occasionally take some positions where the risk of the stock going to zero is much higher than normal (but have much higher than normal upside if they don't). I will never put more than 10% into one of those positions, not matter how good the upside.
One of your previous posts stated you were 100% GOOG. I think this is tremendously unwise. It's not just a question of GOOG being a good co., it's a question of whether the market is overvaluing it or not. You have all sorts of risk, from competition, to valuation, to market size and growth.
Another post indicates you use stop losses to protect yourself. This is okay, but stop losses are also a way of missing out on big gains, just because they were proceeded by a small dip. The reason to own a stock is that you believe in it's upside and it's current valuation. Selling it when it's cheaper and more attractive isn't a route to riches.
As far as private businesses go, I have a friend who's made millions from starting software companies. He is a certifiable business genius. He put it all in his latest venture. He is now flat broke and near bankruptcy. Twenty years of hard work is now gone, he's starting over. That may not scare you at 25, but it sure will at 40.
In summation, I only recommend focused portfolios if you really understand how to research and value investments. Even then, you have to follow a porfolio strategy to control risk. Otherwise take the passive approach and get an index fund.