It’s one of the simplest — yet most overlooked — truths in investing: overall portfolio quality matters more than almost anything else for investing success. Even seasoned investors can underestimate just how powerful it is.
In his now-famous one-page investment memo, Michael Burry wasted no time making a key point in literally the second sentence: “Managing my portfolio as a whole is just as important to me as stock picking, and if I can do both well, I know I will be successful.”
The top quartile beats the rest – and the market
In a market where everyone’s chasing the next big idea, the data reminds us that portfolio quality isn’t just a virtue — it’s a proven strategy for outperformance.
Across over $500 million in user-linked portfolios on Ziggma, those with an average Ziggma Stock Score above 75 achieved an average cumulative return of 56% over the two years through August. That’s not just ahead of lower-quality portfolios — it’s ahead of the S&P 500 itself.
What makes a portfolio high quality
A high-quality stock portfolio isn’t about chasing the latest hype — it’s about smart structure and steady decision-making.
The best investors keep things balanced: they spread risk, stick with strong companies, and avoid big setbacks.
Ziggma’s Stock Scores prove it. Top-performing portfolios tend to hold companies with above-average growth, high profitability, and strong balance sheets — all reflected in scores above 70 across growth, profitability, and financial health.
Three common denominators of high-quality portfolios
When you look at what drives real performance in portfolios, three things keep showing up: These portfolios are well-diversified, packed with high-quality stocks, and built to handle low to moderate volatility — the winning combo for long-term gains.
Here’s a closer look at these three drivers of long-term investing success.
1. High quality stocks
Stocks make up the core of most portfolios — so picking quality names is non-negotiable. But what actually defines a “high-quality” stock?
But what does “high quality” actually mean? In fundamental terms, it’s the kind of company that keeps delivering: strong growth prospects, strong market position, reasonable valuation, and strong financial position with manageable debt and growing free cashflows.
A high-quality business consistently outperforms its peers and keeps improving over time. This is where Stock Scores come in handy. They simplify complexity by condensing vast amounts of data into a single score or rating, plus in the case of Ziggma, sub-scores for valuation, growth, profitability and financial strength.
Read Stock Scoring Compared: Ziggma vs. Zacks, Seeking Alpha and Morningstar.
2. Portfolio diversification
Nobel Prize winner Harry Markowitz famously called diversification the only free lunch in investing — and he was spot on. Spreading your money across a sufficiently large number of holdings, sectors and perhaps even regions helps you cut risk without cutting returns.
When parts of your portfolio zig while others zag, the ups and downs balance out, keeping your growth steady and your stress levels low.
In short, smart diversification lets your portfolio work harder with fewer rollercoaster moments.
3. Low to moderate volatility
As laid out in our post “How To Beat The Market With Low Beta Stocks”, empirical evidence shows that low beta stocks have a greater potential for outperformance over the long-term than popular momentum stocks.
Wide-spread preference for (volatile) buzz stocks creates an opportunity for long-term investors. This strong interest in high-beta stocks results in overpricing of high-beta stocks and underpricing of low-beta stocks. Over the long run, this produces higher future returns for low-beta stocks, as a number of empirical studies have shown.
Therefore, investors should at all times ensure that they keep their portfolio risk (beta) in check, ideally below or close to a value of 1.
Why high-quality portfolios outperform
High-quality portfolios outperform because they combine the three most important levers of investing success: risk management through diversification, ownership of fundamentally strong companies, and disciplined control of volatility.
Together, these elements create a resilient foundation that not only weathers market downturns but also compounds gains more effectively over time.
By focusing on portfolio quality, investors give themselves the best chance to capture consistent returns while avoiding the pitfalls of speculation and poor stock selection.
Quality is the quiet but powerful driver of long-term outperformance.
How to transform your portfolio into a high-quality portfolio
Owning a high-quality portfolio is within each investor’s reach. Here are three straightforward steps to creating a high-quality stock portfolio, accessible to any investing skill level.
Step 1: Check your portfolio for weak spots and imbalances
Managing investments shouldn’t be approximative. Don’t allow weak spots and imbalances to occur in your portfolio.
To stay in control, give yourself the best analytics and insights. These insights let you identify weaknesses and imbalances in your portfolio as soon as they occur.
Brokers often fail to provide useful portfolio insights due to their focus on generating a maximum number of transactions to drive trading revenue. A portfolio tracker is not subject to this type of conflict of interest, so that it can provide you with valuable and unbiased portfolio insight.
In Ziggma, for example, you can start checking for weak spots in these places:
Dashboard: Portfolio Ziggma Stock Score: The higher the better
Dashboard: Beta Risk Factor: Should not exceed 1 by a wide margin
Portfolio – Overview, Holdings Table: Check your holdings’ Ziggma Stock Scores
Step 2: Optimize your portfolio
Once you’ve identified potential for improvement in your portfolio, you can move on to optimize your portfolio. Whether you need to diversify your portfolio or replace bad apples, Ziggma’s got the tools for you.
Stock Scorecards:
1. Identify a stock with a low Ziggma Stock Score
2. Click on the stock or call it up through the search bar
3. View stock scorecard for top stocks in the same industry
Portfolio Simulator
Got a trade in mind to improve portfolio diversification or portfolio quality? Simply run it through the Portfolio Simulator to make sure the trade makes your portfolio better off
Step 3: Track your portfolio
Once you have a great portfolio, you want to make sure it stays that way. Portfolio trackers provide valuable tools to help you stay on top so that you can move in the event of portfolio deterioration.
Here’s how Ziggma’s tracking tools can help you stay on course.
Smart Alerts
Set custom alerts for portfolio diversification, prices, yields and more. You set the limits. Ziggma monitors your limits and notifies you when reached.
Portfolio Fundamentals Tracking
The tab Portfolio – Fundamentals lets you track your holdings’ key performance indicators and stock scores in a one view
Portfolio quality is your edge
In a world where market noise never stops, portfolio quality is your edge. It’s what separates the investors who ride trends from those who build lasting wealth.
By focusing on maintaining a high-quality portfolio, you’re stacking the odds in your favor — not just for the next quarter, but for the next decade.
The takeaway is simple: don’t just own stocks — own quality. Ziggma’s data-driven insights can guide you toward a portfolio that grows smarter, steadier, and stronger over time.