Investing Principle 4: Diversify, but Don't Own the Market

Diversification is good - to a point. Maintain a focussed portfolio that includes enough stocks to limit stock-specific risk, but don't hold so many that you end up simply mirroring the market's returns.

In a rigid fundamental-based investing system, portfolios as small as 10 stocks can significantly beat the market over the long haul.

While you don't need to hold stocks in every sector or industry, set guidelines to make sure you maintain at least some diversification across those areas within your portfolio.