Excerpted from Bogle on Mutual Funds by John C. Bogle, page 80

Portfolio concentration. It is not enough to know how many stocks a fund owns, because many of them may represent a small percentage of net assets and have little impact on the fund's overall performance. The better test is the proportion of total assets the fund holds in its largest positions. One good measure is to check the fund's ten largest holdings. In the more concentrated funds, the ten largest holdings may comprise up to 50% of the portfolio; in the less concentrated funds, they may comprise as little as 15%. As a general rule, the greater the portfolio concentration, the greater the opportunity for the fund to provide differentiated performance. (The differentiation may be positive or negative.) It is also worthwhile to note the industry concentrations in a fund's portfolio as a further measure of its level of diversification.