Someone just asked something I would like to post since it is a question I have heard several times and I always basically respond the same:
“The average small investor needs a certain amount of diversification, but he can get it for himself by buying 5 share lots instead of 100 share lots” (pg 71, Where are the customers’ yachts; Fred Schwed Jr.
Buffett and Fisher also recommend a portfolio of no more than approx 8-10 stocks in a portfolio.
Respectfully asking, what are your thoughts on this? Would you ever consider holding only to 10 stocks?
******** to which I replied: *******
Buffett has now:
- 37 stocks
- 60 or more private businesses.
- lots of cash
That is quite diversified.
Note that Buffett uses lots of leverage and has done it for decades. Mainly investing the float from his insurance companies and more recently the billions of cash obtained by selling options on stock indexes.
From what I remember Philip Fisher had 30 stocks during most of his life and reduced it to less than 10 only in his old age. His son said that he did that when he was older because he had a hard time to concentrate on more.
I try to invest a substantial part of my portfolio in the top 10 or 15 stocks though. I would prefer to have 10 stocks or better only one if I was 100% convinced about it. But that’s not how things have turned out. I have some small positions that either were bigger in the past or never evolved to be big. I do not like to have such a situation but I do not consider that now is the time to sell them.
I think that you have to have a few stocks with most of your money in them. Cash on the side for opportunities when the market falls. And have as many stocks as you are able to comfortably follow. Some people can follow 30-50 quite deep because they dedicate all their time to it. But others don’t have so much time or don’t like to have many and concentrate on less. Distribution matters more than absolute number of companies (how much do you have invested in your top holdings). The key in my opinion is not have stocks that you do not know very well.
PD: I never read Where are the customers’ yachts ? If you are interested I can trade it for another book (that you may chose from my book list).