Concentration Beats Diversification – 2 High-Quality Stocks I’m Watching Closely

Introduction I admire investors who run concentrated portfolios. I do it too, as I own just 16 individual companies in the account that holds roughly 100% of my liquid net worth. While this isn’t the best way to approach retirement investing for many, especially not for inexperienced investors who are likely much better off investing in ETFs, I like it this way, as I can allocate the most capital to my best ideas.  Why would I go for a portfolio of 40 to 50 individual investments when I can just buy more of the companies I trust most?  The downside is that I need to be really good at picking stocks. If I’m not, I can easily ruin my portfolio’s long-term returns. However, if I’m doing a good job, odds are I generate substantial alpha.  On a side note, I’m currently working on implementing my portfolio on this website, so subscribers can soon track my positions. With that said, one of the most concentrated portfolios is run by Chris Hohn of TCI Fund Management. According to HedgeFollow, his portfolio had assets worth $53 billion as of 3Q25. Slightly more than 27.0% of this was invested in GE Aerospace (GE), which is also one of my largest holdings. This was followed by 18.2% for Visa (V) and 16.3% for Microsoft (MSFT). A quick calculation shows that he ended up investing 61.6% of his entire portfolio in just three stocks. The overview below shows his biggest holdings, almost all of which are also favorites of mine in aerospace, finance, tech, and the industrial space. That’s the other reason I like Chris Hohn, as I believe he has a great no-nonsense approach to buying quality.  [Inline image] Source: HedgeFollow  To add some color to this, A Letter a Day published an interview with Chris Hohn, which I found on X the other day . I think we can turn this into core pillars that we can apply to our own research processes - or at least learn from them.  It doesn’t matter how often you are right. It matters more how much we make when we are right. Again, while this strategy isn’t for beginners, I have made the overwhelming majority of my returns from heavily concentrated investments that turned out to be good bets. Comfort Systems USA (FIX) last year was one of them. He makes the case that high concentration is only an issue if we don’t know what we’re doing. In other words, if we have a good understanding of the opportunities and risks that come with our assets, we can expand positions.  In the short term, the market is essentially a voting machine driven by sentiment and noise. Long-term, fundamentals matter much more. That’s an edge investors like you and me have, as we are not bound by short-term performance metrics. We can buy on weakness and wait for a thesis to unfold (within a reasonable timeframe, of course). While Chris Hohn has the ability to influence a company due to his large investments, we cannot do that. However, we can still apply a manager’s mindset and assess the company through the eyes of a Board member or a majority owner. Applying that mindset has helped me make much better financial decisions.  Growth and value are not the same. We can buy a company with high growth and still end up losing money in the long-term. Airlines, for example, tend to have years of high growth. Long-term, however, they have no real competitive moats.  With that said, I decided to dive into my watchlist and use our own GNG Research Terminal to filter on quality. After all, if we want to follow this strategy, we have to find the best of the best companies.  That’s why I think the next part is terrific food for thought, as I have two picks that I would very much like to own in the not-too-distant future due to their ability to generate value, their valuation, and the quality they bring to the table.  My 2 New Watchlist Entries, I’m Sure You’ll Like My watchlist is important to me, as it holds most of the comp