Yes - see your point; but the differentiator here is the fact that I seperate my "trading portfolio" from my "investment portfolio":
"Investment portfolio" - I tend to run a "beta neutral" portfolio (index tracking) with no alpha (extra) value; and thus tend to either have a diverse range of stocks (across many sectors), or opt for something like a Vanguard-style fund (which can be cheaper in the long run).
"Trading portfolio" - I tend to put "play money" to one side (generally only 10 to 20% of total funds) and use the "5 choice stocks" approach only in that portfolio. Not overly worried about capital protection as this portfolio is where I chase alpha (or, in layman's terms: windfalls).
What I find amusing is when my friend lecture me on equities - about the "risks", "volatility", etc. Generally speaking, if you think about your entire investment portfolio chances are you are 80% geared to property (via borrowings/mortgage), 10% geared towards motor vehicle residual risk (how many people forget or ignore this one!) and only 10% geared toward stocks - most likely through your super, which is probably diversified in any case. Taking on an additional 10% exposure to equities, and using the above 10-20% rule, chances are that at any one time only 2% of your total "portfolio" is in speculative stocks. In my mind, that is a small number: and broadly speaking, people focus on the concept of cashflow rather than wealth creation (which b*ggers up your mind a bit!).
