Hi Everyone ,
I need some help and advice from more experienced investors .
My dilemma is I do not know how many stocks to hold (I currently have 30 ) I personally feel this is too much as very difficult to keep track off and to know each company inside out .
I have a feeling I should have no more than 15-20 good companies and only sell a holding to buy something better and thus this discipline will force me to be careful in my selected holdings , well at least that's the theory !! .
I understand the more concentrated the more risk and I am willing to accept this .
I know of some people who have 70 or 80 holdings (so they can sleep at night ) but surely you would be better putting this in a tracker fund ?
At the end of the day its what works for you in the end and I am in no position to judge but would welcome thoughts from fellow investors .
Hi Tony
I noticed you hadn’t got replies yet so I thought I might kick things off. I think it’s a bit of a difficult question and depends on your preferences and the rest of your strategy, but I can give you some thoughts:
The main benefit from diversification is to protect yourself from idiosyncratic risk I.e. the risk that a particular business does less well than expected. It does not protect you from market risk. The benefits of this diminish quite quickly after 15 shares or so, so there isn’t really a very strong justification for holding more than this solely on diversification grounds.
If you are a ‘buy and hold’ investor with some conviction in your stockpicking it might make sense to be quite concentrated and hold only your best ideas that you know inside out. If you are doing something more systematic like investing with Stockranks, or trading momentum you might prefer to hold more shares (at least it would probably not hurt your returns much to do so).
My experience is that more concentration leads to better results, but only if you can control the psychological / emotional mistakes being too concentrated can cause. I am more prone to panic / cut winners if the positions are too large. The impact of overtrading is also proportionally greater if I hold fewer positions.
As someone with a more systematic approach who is prone to overtrading, I’m currently slowly moving from 15 to 25 holdings but will remain quite concentrated in my high conviction picks. Bottom line is I don’t think there is fundamentally a great difference between having 15 or 30, but what works for you depends on your approach and what kinds of mistakes you are prone to.