Do the Guru Screens incorporate the need for diversification?

Not at all. These are purist screens, not model portfolios. The Guru Screens are strict and reflect a strict application of the selection criteria at a given moment in time, regardless of the resulting level of stock or sector concentration in the output list.

In some cases, like the Joel Greenblatt’s Magic Formula, the nature of the criteria means that there will always be 30 stocks, but in the case of, say, the Bill Miller screen, the number of holdings can be much, much lower. You can see the average number of holdings for each screen on the far right of a given Guru Screen.

It's very important to review this. Just because a screen has done well, that doesn't necessarily mean that it's that attractive. It might be highly concentrated in a few stocks, and prone to a major crash or reversal.

How should I factor in diversification?

This is all part of the DYOR aspect of Stockopedia. We do provide great tools for analysing diversification. Diversification is a controversial subject but, generally, it is felt that the optimal diversification for active stock portfolios is between 5 and 30 stocks depending on portfolio size and confidence. Some of the great value investors have had success running 'focus' portfolios with heavy weightings in just a few stocks, but then again, research has shown that the average individual investor holds only 4 stocks and underperforms the market by 4% annually. The question is 'are you Warren Buffett'? At the other extreme holding more than 20 or 30 stocks runs the risk of building an inefficient and expensive 'tracker' fund.