More than 200 years of financial history show that owning a diversified portfolio of stocks gives you the highest probability of reaching your long-term financial goals.

What’s the best way to go about that?

One of the simplest and easiest ways is to own a portfolio of index funds like The Oxford Club’s Gone Fishin’ Portfolio.

All that’s required – as I discussed in my last column – is that an investor follow a sensible asset allocation using tax-efficient, ultra-low-cost Vanguard funds and then take a few minutes a year to rebalance the portfolio.

It’s not sexy. It’s not exciting. It doesn’t give you a thing to brag about at cocktail parties and barbecues.

But it does allow you to achieve your most important financial objectives with little fuss, low volatility and a minimal time expenditure.

The Gone Fishin’ Portfolio – or something very much like it – should serve as the foundation of every serious investment program.

Yet, understandably, some investors want more.

They haven’t saved enough. Or they started too late. Or retirement is costing more than expected.

Or they simply like the challenge – and satisfaction – of earning market-beating returns.

These folks require something different: a concentrated portfolio of well-chosen stocks.

Great fortunes have always been built not by diversification but by concentration.

Warren Buffett’s 50-plus years of market-beating performance with Berkshire Hathaway (NYSE: BRK-A) would never have happened if he had owned hundreds of stocks. (No one can pick that many winners.)

And Jeff Bezos and Bill Gates aren’t the world’s two wealthiest men because they chose to diversify so broadly beyond Amazon (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT).

If you need to goose your returns in the months and years ahead, your best strategy is to invest in stocks that give you an edge.

What kinds are those? In my experience, it boils down to three types.

The first is value stocks, Buffett’s specialty.

He buys well-managed companies with good cash flow, excellent prospects, reasonable valuations and a sustainable competitive advantage – like trademarks, patents and brand names – and then holds them not just for years but for decades.

This is a proven formula to generate above-average long-term returns. But it requires something that many investors don’t have – patience.

As my colleague Nicholas Vardy pointed out last month, while Buffett has slaughtered the S&P 500 since he took the helm of Berkshire back in 1965, he has actually underperformed the market over the last one, five, 10 and 15 years.

Sometimes the long term is very long indeed.

Another proven recipe for success is to focus on momentum stocks. I refer to these as “growth stocks on steroids.”

This is the small subset of companies that lead the market in innovation, sales and earnings growth, and positive surprises. (Apple and Amazon are good examples.) Their share prices generally lead the market higher.

The third proven strategy is to buy the same stocks that corporate insiders are buying.

Think about it. Officers and directors have access to all sorts of material, nonpublic information about the future prospects of their business.

They know about new products and services in development. They know the direction of sales since the last quarterly report. They know whether the company has gained or lost any major customers. They know whether any litigation against the company is about to be resolved.

In short, they have an unfair advantage. They know all sorts of things that those on the outside looking in couldn’t possibly know.

That’s why the Securities and Exchange Commission requires corporate insiders to file a Form 4 detailing how many shares they bought, on what date and at what price any time they buy or sell their own company’s shares.

And – surprise, surprise – studies regularly show that insiders substantially outperform the market with their own investments.

So riding their coattails is another worthwhile strategy.

Of course, anybody can plunk for a few shares of stock. The key is knowing how much to invest and when to get the heck out.

I’ll cover those important subjects in my next column.

Good investing,

Alex