Privat Capital holds a concentrated portfolio of 16-17 stocks. This strategy forces deep conviction in each position and ensures that winners have a meaningful impact on fund performance. Over-diversification can dilute both research focus and the potential returns from a fund's best ideas.

The highly successful NZ Superfund derives its value from a few large, high-conviction strategic bets where it has a unique edge, rejecting the conventional wisdom of broad global diversification for large asset owners.

Many investors wrongly equate high conviction with making a large initial investment. A more evolved approach is to start with smaller at-cost positions, allowing a company's performance to earn its eventual large weighting in the portfolio. This mitigates risk and improves decision-making.

To manage the perceived risk of a highly concentrated fund, Mohnish Pabrai advises investors to size their position appropriately relative to their total net worth. By recommending investors allocate less than 20% of their wealth to his funds, a single stock representing 50% of the fund becomes a more manageable 10% of the investor's total assets.

Since it's impossible to know upfront which investments will generate outlier returns, the key isn't picking them but holding them. The biggest mistake is 'cutting your flowers to water your weeds'—selling winners to invest in underperformers. You must 'circle the wagons' around your core assets.

The biggest lesson Mohnish Pabrai has learned is to stop selling great businesses when they seem fairly or even slightly overvalued. The true intrinsic value of a rare compounder is unknowable, and the cost of exiting too early from one of the few big winners far outweighs the risk of holding through high valuations.

In contrast to "Raiders" who sell for a quick 20% gain, the most successful "Connoisseurs" achieve outsized returns by letting their winners run. This long-term conviction, while seemingly boring, is where the majority of wealth is created in a portfolio.

While managers can identify their best ideas within a larger portfolio, this doesn't mean a fund holding only those few ideas will succeed. Empirically, highly concentrated managers often don't outperform. This approach may attract managers whose success is more attributable to luck than skill.

Over 58 years, Warren Buffett made ~400 investment decisions, but only 12 truly mattered—a 4% hit rate. The crucial insight is not just buying right, but holding these few exceptional businesses for decades, allowing compounding to work its magic.