Does minding fewer stocks add more oomph to a portfolio?
By LAUREN R. RUBLIN For the past 20 years, students of stock-market investing have worshipped at the twin altars of modern-portfolio theory and efficient-market theory. The first holds that the more diversified a portfolio, the less the risk from each of its components. The latter posits that active money managers have no more stockpicking prowess than a bunch of randomly tossed darts. Marry these theories, and what do you get? An index such as the S&P 500, which has vanquished all but a few extremely gifted — or is it merely lucky? — active managers, especially in recent years. No surprise, you won’t find too many portfolio jockeys at the wedding, throwing rice. Instead, the S&P’s compelling example to the contrary, a small but growing cadre of investment pros is turning its back on both revered theories. These particular managers seek to beat the mighty index — and some have done so resoundingly — by concentrating their bets on no more than 25 stocks. And they’re in arguably exce
