Why I need a team

My Strategy Lab portfolio is based on the "best-ideas portfolio" that I've been writing about in Marketscope, our monthly newsletter, and that I use for my family's investments and clients with managed accounts. It is an aggressive and diversified "explore" portfolio.

When a portfolio is described as aggressive, it usually means that it is going to make big bets. In other words, it is not going to be diversified. This is a formula for making a lot of money when you are right -- and for losing spectacularly when you are wrong. Because everyone is wrong sometimes, this strategy inevitably leads to disaster.

When a portfolio is described as diversified, it usually means that it will not beat the market by much, if at all, after deducting fees. The more diversified a portfolio is, the more likely it is to end up lagging the broad market by the amount of its fees.

It is hard to build a portfolio that is both aggressive and diversified because picking the right oil stocks takes expertise that differs from what's needed to pick the right biotech stocks or the right technology stocks. Developing and maintaining expertise in a lot of industries is a job that no one can do alone.

I know I can't do it by myself. That's why I spent the past seven years building the ultimate investment team. I call this team the m100. Its members are 100 of the most skilled investors I've ever had the privilege of working with.

I rely on the expertise of the m100 to research stocks in every sector of the market to find those that have the potential to double in two years.

2-year horizon

I set my time horizon at two years because I don't think there is much that a company's management team can do to materially affect a company's value in less time.

If you have a shorter time horizon, you are betting mostly on things that management cannot affect. Factors such as whether someone wants to buy or sell big blocks of the same stock at the same time as you do become very important to those with short time horizons.

Wall Street has much better information about who wants to buy or sell a stock than you or I, giving those analysts a tremendous advantage over the rest of us in the short term.

But over two years, the company's value is driven by whether its management applies its resources to make a product that its customers value highly enough to generate a profit. In making judgments about which companies are doing a better job of this than others, it helps a great deal to have had some firsthand experience in the industry. Because few Wall Street analysts have ever spent much time working in any other industry, they are at a disadvantage.

Going for doubles

If you ask what has to happen for a company to double in two years, the list will be short. Keeping my sights set on doubles in two years keeps me focused on the key issues that management teams can do something about -- issues that have the oomph to provide the returns to make the effort worthwhile.

Aiming for doubles always carries risk. There are no sure bets, even when you have an all-star team working for you. That is why I want to have a diversified portfolio of aggressive stocks.

If I were right 100% of the time, the portfolio would return 41% per year because every stock would be doubling every two years. But I know I'm not right 100% of the time, so I expect the portfolio's return to be somewhat less. That's why I am a little surprised that after three Strategy Lab rounds spanning 18 months, this portfolio has stayed on pace to double in two years.

Choosing the right team

The best decision I made in the last round was right at the start, when I decided to stick with the team members who have proved themselves to be best in “choppy” markets. They have done a great job, but the markets are constantly changing, and they may not be the best suited for the current market.

When I look at someone's track record, I do not expect that they will deliver the same returns in the future as they did in the past. But I do expect that they will apply the same good judgment they've demonstrated so effectively in the past to navigate the opportunities and threats I think we will face in the future.

In my view, the set of opportunities and threats that we are facing has changed since the beginning of the last round. I'll let you know of any changes I make to my team when I post the opening trades for this round.

Invitation to the Strategy Lab Open

I am honored that MSN Money has asked me to help select one of the participants for the next round of Strategy Lab.

I have been tracking the investment decisions of thousands of people for more than seven years now. I know people on and off Wall Street who are doing a great job with their investments. Strategy Lab readers, however, want more than good returns. They want to know the reasons behind the investment decisions.

In order to give the experience of competing in Strategy Lab to a lot more than six players at a time, I've teamed up with my friends at InvestorPlaceBlogs to produce the first Strategy Lab Open competition. For details and to register to compete, go to strategylabopen.com.