Diversifying Too Much Hampers Potential Gains.(A)(INVESTOR'S CORNER)

Byline: JONAH KERI

Listen to enough Wall Street talking heads and you'll hear a popular refrain: Don't put all your eggs in one basket.

Here's an idea: Instead of pet theories, rely on sound, objective analysis in making your investing decisions. Often you'll end up doing exactly the opposite of what conventional wisdom tells you.

Take the mantra of diversification. Financial planners love to trumpet reducing risk. To do so, they insist, you need to cast a wide net. Buy a bundle of stocks. Grab bonds, gold, real estate and magic beans too. The more investment vehicles, they claim, the less chance you'll suffer nasty losses.

Yes, throw 100 darts and a few will stick. But many others will miss. The result will be a watered-down portfolio yielding minimal gains, without a guarantee of keeping any of your losses small.

Want a better way to reduce risk while also maximizing gains? Wait for a good market, then buy a few leading stocks breaking out of sound bases. Cut your losers fast, allowing no more than a 7%-8% loss on any holding. In a bear market, stay in cash.

As your winners start to move up, whittle your holdings down to your very best few stocks. Add shares to your winning positions.