Today I’m doing something a little different.

A reader named Mark sent in a question so relevant to many investors that it deserves a full response.

I enjoy reading your insights. Thank you! As a Paradigm member, my biggest problem is holding too many positions because I want in on the potential the many recs have to offer. What I admire most about your approach is your ability to look at so many good stocks and pair it down to a select few to invest in. Can you please provide some insight into your process and how to avoid having too many positions? – Mark

Thanks for the question, Mark.

There are a lot of great companies out there.

The challenge isn't finding them.

The challenge is deciding which ones actually deserve your money.

Over the years, the overwhelming majority of the money I've made in the stock market hasn't come from owning dozens of positions.

It's come from making large investments in a handful of companies I had tremendous conviction in.

This has become one of the core principles behind The Million Mission.

My Biggest Winners Fall Into Two Categories

Looking back over my investing career, my biggest winners almost always fall into one of two categories.

Category #1. Early investments in emerging technologies.

Buying Nvidia before the AI boom is a perfect example.

Back then, very few investors realized that Nvidia's graphics chips would become the backbone of artificial intelligence.

Today, AI has become one of the biggest investment themes in the world.

Looking ahead, I believe autonomous vehicles and quantum computing will become the next major technology waves.

Category #2. High-quality companies that temporarily fall out of favor.

Meta in 2022 is one of my favorite examples.

The stock collapsed. Investors hated it.

Yet the underlying business remained one of the greatest companies ever built.

Eventually, the market recognized that.

A few companies fit this description today.

Nvidia, Microsoft, Uber, and Netflix are a few of my favorites.

A Great Company Isn't Always a Great Investment

Finding a great business is only half the battle.

The other half is deciding what you're willing to pay for it.

One of the quickest ways I narrow my list is through valuation.

In fact, I almost never buy stocks trading at valuations I consider expensive.

This simple rule immediately eliminates a huge number of companies and naturally keeps my portfolio much smaller.

Of course, valuation isn't everything.

A fast-growing company deserves to trade at a higher multiple than a slow-growing one.

That's why I'm looking at several things together:

• Revenue and earnings growth

• Whether Wall Street's expectations are moving higher or lower

• The valuation I'm paying today

• The size of the opportunity ahead

You can find most of this information for free on the Analysis tab of Yahoo Finance.

Generally speaking, I want to see analysts raising their expectations and I want to make sure the valuation I'm paying makes sense relative to expected growth.

A stock trading at 40x earnings isn't automatically expensive if earnings are expected to grow 50% next year.

In fact, it may actually be cheap.

Likewise, a stock trading at 20x earnings isn't automatically a bargain if the business has stopped growing.

Putting It All Together

In my portfolio, every stock is competing for the same investment dollars.

So when someone asks me about a company, the question I’m trying to answer isn’t:

"Should I buy this stock?"

Instead, I ask:

"Should I buy this stock instead of one of my other favorite picks?"

Take Apple, for example.

It’s one of the greatest companies ever built.

But today, it trades at roughly 34x next year's earnings while analysts expect earnings growth of around 10%.

Now compare that to Nvidia.

Nvidia trades at roughly 16x next year's earnings, yet analysts expect earnings growth of around 45%.

So I have to ask myself:

Should I buy Apple instead of Nvidia?

I'm not saying Apple is a bad investment.

Far from it.

I'm simply saying I think Nvidia offers a better combination of business quality, growth, valuation, and upside.

For this reason, I’d much rather allocate investment dollars toward Nvidia versus Apple.

Concentration Isn't for Everyone

Before I wrap up, I want to make one thing clear.

This approach isn't right for everyone.

A concentrated portfolio naturally comes with bigger swings and more volatility than a diversified one.

If watching one position fall 20% causes you to lose sleep, there's absolutely nothing wrong with owning more stocks and spreading out your risk.

Every investor has a different risk tolerance and a different capacity for volatility.

For me, however, concentration has been responsible for the vast majority of my success.

I didn't build wealth by making tiny investments in dozens of companies.

I built it by making meaningful investments in a handful of businesses I understood well and believed in deeply.

At the end of the day, every dollar has a job.

I want as many of those dollars as possible working in my highest-conviction ideas – not my fifteenth-best one.

That's the framework I use.

And it's exactly how I'm managing The Million Mission.