How many stocks should you hold?
The proprietor or manager of a business is likely to have only one investment, his or her business – nothing wrong with that.
Most equity funds hold many stocks – nothing wrong with that either. In recognizing its limitations, management is minimizing the impact of mistakes. The last thing you want if someone who doesn’t know what he or she is doing investing your money in a handful of stocks.
As an individual investor, having a few hundred dollars in each of very many stocks is obviously not economical in terms of brokerage fees, administration and time devoted to following each stock. Availability of worthwhile opportunities, aversion to risk, size of portfolio and level of expertise all contribute to the number of stocks you should hold.
If you know what you are doing and have the time to do research, as a rough guide, the maximum stocks to be held should be the lesser of 15 or the square root (to the nearest whole number) of the collective market prices of the portfolio divided by 1000. So a portfolio priced at $9000 would contain 3 stocks. (Square root of 9000/1000 = square root of 9 = 3)
For example:
Value of portfolio…. Maximum Number of stocks
$4000……..2
$9000……..3
$16,000…….4
$25,000…….5
$36,000…….6
$49,000…....7
$64,000…....8
$81,000…....9
$100,000…..10
$121,000…..11
$144,000…..12
$169,000…..13
$196,000…..14
$225,000+…..15 (Maximum)
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
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