Concentration is the trade. We have to be willing to live with it.

The Advising Alpha model portfolios are concentrated by design. Core 20 holds roughly 20 positions. BioTech 10 holds 10. Tepper Tactical and Market Masters sit in similar territory. Compared to a broad index that holds 500 names, these are concentrated portfolios. Concentration is the structural mechanism that allows the portfolios to outperform the index over time. It is also the structural mechanism that produces the larger drawdowns and the longer divergences that occasionally make the strategy uncomfortable to hold.

The trade-off is unavoidable. A portfolio that owns one of every stock cannot beat the average. A portfolio that wants to beat the average has to look meaningfully different from the average. That is the entire premise. Looking different is the only path to performing differently. The cost of looking different is occasional periods where the difference runs against you.

This week we want to be explicit about that trade-off because it is the most common reason members second-guess the strategy during a rough patch. The portfolios we publish are not trying to beat the index by 1-2 points a year with low active risk. They are designed to beat by meaningful margins over multi-decade horizons, which requires accepting meaningfully more variability around the index than an index fund would have. Anyone considering whether to subscribe should understand this clearly. Anyone already subscribed should re-read it during any drawdown.