Diversification is sold as prudent. In many contexts, it is. But for investors who actually know the companies they are putting capital into, broad diversification is also a way of hedging against your own conviction. Matthew Schissler of Paradise Valley has built his approach around directness, not dispersion.
His funds invest directly in small and mid-cap public companies where he has formed a specific thesis. That is not the same as running a passive index exposure or buying into a fund that holds 300 positions.
What Concentration Actually Requires
Concentrated investing is not just a portfolio decision. It is a research commitment. If you are going to hold a smaller number of positions with meaningful weight behind each one, you have to understand what you own well enough to ride out the periods when it looks wrong.
That requires a different kind of diligence than running a diversified screen. You are not looking for a basket of stocks that approximates a market segment. You are looking for specific companies where your thesis is well-founded and the risk you are accepting is the right kind.
What Passive Exposure Cannot Give You
Passive exposure to small-cap equities buys you the average outcome across the segment. For certain investors, that is the right trade. For Schissler, the average outcome is less interesting than the specific company with real growth trajectory that the index weights at 0.3 percent.
Passive structures also create distance from the underlying business. You cannot engage with a company when you own it as a fraction of a fund that holds 500 positions. Direct investing allows for a different level of engagement, including at the board and advisory level.
The Private Ownership Parallel
Schissler’s direct investments extend into private companies across sectors including a commuter airline, an insurance company, and boutique fitness franchises. There is no diversified version of owning part of a commuter airline. You either understand the business, or you do not invest in it.
That experience with private ownership reinforces how he thinks about concentrated public positions. In both cases, you are betting on a specific business and the people running it, not on exposure to a category.
The Risk in Concentration and How It Gets Managed
Concentrated positions carry real risk. If you are wrong about the thesis, the loss is not softened by 299 other positions doing fine. That is the honest version of what concentration means.
The mitigation for that risk is not diversification. It is rigor: being honest about what you know and what you are assuming, and knowing when the thesis has changed versus when the market has not caught up yet.
Schissler’s background in advisory and board roles gives him a framework for evaluating those questions at the company level, not just the price level.
Concentration is not for everyone. But for an investor who does the work, it is the structure that aligns effort with outcome. The upside of passive diversification is that the mistakes average out. The downside is that the insights do too.