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Higgins Capital Management, Inc.

Concentrated Portfolios: The Bold Investment Strategy for Fearless Investors

A concentrated portfolio is an investment strategy that involves investing a significant portion of an individual's or institution's assets into a limited number of holdings, typically consisting of a small number of stocks, bonds, or other securities. This approach differs from the more common diversified portfolio strategy, which aims to spread risk across a wide variety of investments. While this approach has the potential to generate higher returns, it also comes with increased risk. Investors considering this strategy should carefully weigh the potential benefits against the risks and ensure that it aligns with their overall investment objectives and risk tolerance.

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The primary goal of a concentrated portfolio is to generate higher returns by focusing on a select group of investments that the portfolio manager believes have the greatest potential for growth or income. By allocating a larger percentage of the portfolio to these chosen securities, the investor can potentially amplify their returns if their investment thesis proves correct.

However, this strategy also comes with increased risk. By having a significant portion of the portfolio tied to a small number of investments, the investor is more vulnerable to the performance of those specific holdings. If one or more of these investments underperform or experience significant losses, it can have a substantial negative impact on the overall portfolio.

Investors who employ a concentrated portfolio strategy often have a high level of conviction in their investment choices. They may have a deep understanding of the companies or securities they invest in, and they are willing to accept the higher level of risk in exchange for the potential of greater rewards.

To manage risk in a concentrated portfolio, investors may employ techniques such as position sizing, where they allocate a specific percentage of the portfolio to each holding based on their level of conviction and the security's risk profile. They may also set strict sell disciplines, such as exiting a position if it reaches a certain price target or if the original investment thesis no longer holds true.

It is important to note that concentrated portfolios are generally more suitable for sophisticated investors who have a higher risk tolerance and a long-term investment horizon. These investors should also have a deep understanding of the securities they are investing in and be prepared to closely monitor their holdings.

Concentrated portfolios can be constructed using various approaches, such as:

1. High-conviction picks: The portfolio manager selects a small number of securities that they believe have the greatest potential for growth or income based on their research and analysis.

2. Sector-specific: The portfolio focuses on a particular sector or industry that the manager believes will outperform the broader market.

3. Geographic focus: The portfolio concentrates on investments within a specific country or region that the manager believes offers attractive opportunities.

The information contained in this Higgins Capital communication is provided for information purposes and is not a solicitation or offer to buy or sell any securities or related financial instruments in any jurisdiction. Past performance does not guarantee future results.

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