Ken Heebner rang up 18% per year in the CGM Focus Fund over the past ten years, despite operating in one of the worst equity investment environments in history, earning it the title “best stock fund of the decade.” I'm a big fan of the focused approach to portfolio management; diversification beyond a certain point becomes nothing more than a cop out. If you want 500 stocks buy the index. If you want to do better than the index you have to focus only on the most attractive investment opportunities. Props to Heebner for having the balls to run an open-ended mutual fund this way.

One difficulty with managing focused portfolios, however, is that they are typically more volatile (but not necessarily riskier) than more diversified portfolios. From the looks of things, this had a detrimental effect on the fund's investors because they managed to find a way to lose 11% per year in the fund over the same time it rang up the best returns in the biz. How is this possible? Only by buying at the top and selling at the bottom. Amazing.

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