Please stay tuned for important disclosure information at the conclusion of this episode.

Welcome to Investing Insights. I'm your host, I Vana Hampton. Some investors argue putting a lot of money in your highest conviction stock picks is the way to beat the market.

Others claim making an outsized bet on one or more stocks is too risky and similar to gambling. What does the

data say? Do big stock bets tend to hurt or help equity portfolios? Morningstar Research Services,

senior manager research analyst Jack Shannon, Ranan Numbers.

He's here to share what he learned.

Thanks for joining me, Jack.

Yeah, thank you for having me.

So, Jack, you researched what kind of values so-called big bets bring to mutual funds.

Let's start off with how you define a big bet.

Yeah, so for this study, we wanted to find instances going back 25 years of managers who made

sizable bets.

Now, they won't tell you it's a bet because they don't really think in this sort of binary

outcomes.

So for me, I was like, okay, what's the starting point?

For a diversified mutual fund, you know, the 1940 Act says you can't have more than 25%

of your portfolio in positions that are 5% or more.

So by the SEC's definition, 5% is sort of the starting point.

So I use that as the base and said, okay, we're going to try to find every position that

averaged 5% of the portfolio over its lifetime. But I and said, okay, we're going to try to find every position that averaged

5% of the portfolio over its lifetime. But I was like, okay, well, we need to do a little more. Like, let's just not use that as the as the base. Let's go a little higher. So I was just, you know, talking to people in the halls and on, you know, different ratings committees and all that. And we kind of, you know, he said like 8% is where, you know, on our team are like, 8% is getting pretty

high. So 8% is where, you know, on our

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