Why do focus and concentration matter?

Professional managers charge a fee to manage your money. The expectation is that a manager will add value by applying their skill, resources, and knowledge to the security selection process. If you pay someone to look like an index, you may as well own the index and save the fees. On the other hand, if you believe that there is an advantage gained by collaborating with a specialist, then you want to see evidence of their focus and conviction.

Focus and conviction are the opposite of diversification and uncertainty.  If you don't know, or you are unsure about what you are doing, diversification is your friend - safety in numbers.  Many people are well advised to ride with the herd and hold a broadly diversified basket of securities such as a low cost index fund to spread the risk of not knowing.  Buffett refers to the diversification approach as deworsification, what fools do to hide their mistakes!

The wealthiest people on the planet are usually business owners and normally their wealth is derived from the ownership of one company.  As an example, 98% of Buffett's wealth is attributed to Berkshire Hathaway Inc.  Mutual funds are prohibited from holding more than 10% of the fund in any one company or holding more than 10% of any one company's stock, so there is mandated protection against the risk associated with concentration.  The number of stocks needed to spread the risk depends on the vulnerability of the selections made by our managers.  We prefer managers that choose sparingly, and invest heavily when they are confident of a successful outcome.