Build a Diversified Portfolio? 5 QUESTIONS To Determine How Many Stocks You Need (Investing Tips)

How many stocks should you own? How diversified do you need to be? What's the ideal stock portfolio size and diversification strategy? In this video, I outline five questions that you need to consider when it comes to choosing the appropriate size of YOUR portfolio.

In my last video, I have shown that diversification may preserve wealth, but that concentration builds wealth. I explained why investors who desire to outperform the market need to run a highly concentrated portfolio as opposed to an over-diversified portfolio. And I referenced various studies that illustrated just how quickly most of the benefits of diversification can be achieved. For example, one of the studies showed that about 90% of the maximum benefit of diversification – which is mainly reduced volatility – was derived from portfolios of 12 to 18 stocks". If you haven’t watched this video yet, I highly recommend watching this video first. I'll add a link below.

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In this video, I will illustrate that the reduction of volatility is steep at first but then levels off. On the other hand, average expected returns decline more slowly. At some point, the benefit of additional diversification is outweighed by the cost of additional diversification.

Robert Hagstrom wrote in his book "The Warren Buffett Portfolio", "Choose a few stocks that are likely to produce above-average returns over the long haul, concentrate the bulk of your investments in those stocks, and have the fortitude to hold steady during any short-term market gyrations."

So how many stocks should you own? Well, if you ask ten different investors, you will get 10 different answers. If I had to classify the most famous superstar investors, I would put them in three buckets. First, there are the "ultra-concentrated" investors with less than 10 stocks and large positions representing 20-40% of the portfolio. Then you have those with around 10 stocks, a standard position size of 10%, 1-2 larger positions, and a handful of smaller positions. And lastly, still others believe in a 20-stock model, standard position sizes of 5%, their best 2-3 ideas are modestly larger, and some smaller holdings.

So which model should you copy? I think this depends on a lot of factors. I think there is not THE right way to do it. So I recommend considering the five questions I outline in this video.

Music – PPB: High [NCS Music Without Limitations]

Chapters:
0:00 Intro
2:06 How quickly can diversification be achieved?
5:29 Classifying superstar investors' portfolios
7:40 Question #1
8:43 Question #2
9:37 Question #3
10:53 Question #4
12:00 Question #5
13:37 Investing is personal
14:41 How many stocks I own

DISCLAIMER
The content provided on this channel should be considered an educational resource and should not be construed as individualized investment advice, nor as a recommendation to buy or sell specific securities. The stocks and funds discussed on this channel are examples only and may not be appropriate for your individual circumstances.

Before making any financial or investment decisions, I recommend you consult a financial planner or advisor to take into account your personal investment objectives, financial situation, and individual needs.

In no event shall René Sellmann be liable to any viewer for any damages of any kind arising out of the use of any content published on this channel, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages.

I hope you enjoyed the content!

Are these five questions any helpful? Do you consider yourself a deep value or a high-quality/compounder investor? How many stocks do you have in your portfolio and why?

[hihomojo]

These are really great videos! Some of the better out there.

[JuanBattaglia]

Thanks for the video. It could be nice a video about cloning other respectable investors with conviction and concentration. Thanks.

[NicoDGr]

Hi René, Thank you for your content :D
I think a 6th question you have to ask yourself regarding bulding your portofolio is your level of skills . For example, i don't have a long history of investment and so I try to not have highly confidence in my ideas even if I find them really great. That is why I run a portfolio of 15 stocks because I am aware of the high possibility of me being wrong. Even if I have really great results ( more than 70% for this year), I never forget that luck have probably a high impact on those results

[sorabhutube]

Hi Rene.. lets say if you have 20 stocks and a great idea comes through. Would you want to sell off onf of your longs to accommodate this new stock ? Plus when should one take away profits so one can free up capital for more investment ideas plus also ensure that you turn that paper profit into some thing real.