Despite the risks, there are a number of advantages that can stem from a concentrated portfolio. For one, if a fund owns such a large stake in a company, management is likely to be intimately familiar with the inner workings of the company.
Another potential advantage is that management can bide its time and invest heavily only when the right opportunity comes along. As always, though, picking that opportunity is easier said than done. "Obviously, if you come from the Warren Buffett school, that [strategy] makes a lot of sense. You don't have to swing at every pitch. You can take 1,000 pitches before you swing," Kinnel says. "It [works] for Buffett because he's a brilliant investor. Most people are more likely to make errors."