Here is an article that will provide some in-depth background and a case for concentrated portfolios.  Its a good read.

With the rise of the Modern Portfolio Theory, for more than five decades diversification has been inherent to portfolio construction. However, this trend has evolved into what may be deemed over-diversification—where securities are included in a portfolio to dampen volatility rather than because of fundamental stock picking. We believe the inclusion of a security in a portfolio should be driven by high conviction in the underlying investment idea.

Many famous investors have created wealth through employing concentrated strategies. Yet, such a technique is contradictory to Modern Portfolio Theory (MPT), which stresses diversification as a risk-reducer.

In our view, concentrated portfolios benefit from the intuitive conclusion that they are more likely to include companies representative of a manager’s top ideas. In this paper, the Lazard US Equity Concentrated team examines empirical evidence found in academic studies in support of concentrated portfolios’ outperformance. The team also discusses its portfolio construction approach where a stock’s cash flow uniqueness—in itself and relative to the rest of the portfolio—drives the decision for consideration in the strategy.

For the complete article by Lazard Asset Management, click here