A Case For Diversified Portfolios.

Came to this article last week via  the Reformed Broker.  My take aways from the article are listed as the key points numbered below.   You should go read the whole thing at the link below.

1. {D}iversity of performance--both on an absolute- and relative-return basis—should be just as big a goal for investors as is asset-class and investment-style diversification. By assembling a portfolio of holdings with varying performance patterns--some that look good right now, some not so good--investors can check that their portfolios are truly diversified. And that may, in fact, be the best way to use past performance numbers to their advantage.

2. One of the first lessons most investors learn is the value of asset-class diversification. Although stocks have historically generated better returns than any other asset class, diversifying into bonds and cash greatly reduces the volatility of an equity-only portfolio. 

3. Investors want to believe that the fund with winning performance numbers will continue to have an edge over its peers. But in reality, past performance isn't very predictive, especially for equity funds. 

4. {T}he clearest and most intuitive gauge of a truly diversified portfolio isn't necessarily your style-box or asset-class exposure, but whether you're holding some winning holdings--in absolute and relative terms--as well as some holdings that have performed poorly. Rather than letting the losers cause you angst, view them as a sign that you're doing something right.

Link:  Morningstar.com:  In Defense of your Laggard Holdings.