You also need to have a clearly articulated portfolio-building strategy that guides what sort of stock funds you buy and how much you invest in each. They buy one stock and then another one and then another one. I don't advocate that for mutual-fund investors. You've got to have a framework. Indeed, the portfolio-building strategy you adopt is at least as important as the funds you end up buying.
Some strategies are as simple as putting together a collection of index funds.
Build a global portfolio using funds that aim to replicate the performance of the market averages. Others are riskier, involving hefty bets on particular stock-market sectors or on the market's overall direction. And you don't have to pick just one strategy. Many investors end up combining two or more portfolio-building approaches. Possibly the most popular strategy is to spread money among the best fund managers in some well-defined market sectors.