Having an edge, enough diversification, low costs and respect for the crowd

1. Don’t invest where you have no discernible edge. Only invest in sectors where you have a superior knowledge of the business or can, with effort, gain that knowledge over time. For example, you might want to avoid technology shares. Some industries are much easier to understand than others. Do not try to jump over six foot hurdles when one foot ones are around.

1. Don’t over-diversify

Some degree of diversification is necessary to lower risk and bolster performance, yet to over-diversify could lead to hobbled performance.
John Neff said ‘by playing it safe, you can make a portfolio so pablum-like that you don’t get any sizzle.  You can diversify yourself into mediocrity.’
You do not have to hold shares in every sector of the economy; merely a reasonable spread, staying within your circle of competence and in areas of the market where there is evidence of undervaluation.
It is stupid to own, for instance, turbine companies if the market is over-excited about this sector.
A dozen or so companies is usually sufficient to provide the private investor with enough diversification. A mutual fund, such as the one I’ll be running next year, needs to be more diversified to be able to withstand a flood of client redemptions at a time of market turbulence to avoid too much dependence on rapid liquidation from a mere handful of stocks; but still I expect to have only around 20-25 companies.

1. Don’t incur unnecessary expense

Try to keep running c