It is important to know:
1. how many stocks to own in your portfolio, and also,
2. the percentage of your portfolio occupied by each stock.
A good investor has a knack for having a greater percentage of their money in stocks that do well and a lesser amount in their bad picks.
How does he do it?
Essentially, a portfolio should be weighted in direct proportion to how much confidence you have in each pick.
If you have a lot of confidence in the long term outlook and the valuation of a stock, it should be weighted more heavily than a stock than a stock you may be taking a flier on.
Weight your portfolio wisely.
Don't be too afraid to have some big weightings, but be certain that the highest-weighted stocks are the ones you feel the most confident about.
Of course, do not go off the deep end by having, for example, 50% of your portfolio in a single stock.
Additional notes:
If a stock has a 10% weighting in your portfolio, then a 20% change in price will move your overall portfolio 2%.
If a stock has only a 3% weighting, a 20% price change has only a 0.6% effect on your portfolio.
1. how many stocks to own in your portfolio, and also,
2. the percentage of your portfolio occupied by each stock.
A good investor has a knack for having a greater percentage of their money in stocks that do well and a lesser amount in their bad picks.
How does he do it?
Essentially, a portfolio should be weighted in direct proportion to how much confidence you have in each pick.
If you have a lot of confidence in the long term outlook and the valuation of a stock, it should be weighted more heavily than a stock than a stock you may be taking a flier on.
Weight your portfolio wisely.
Don't be too afraid to have some big weightings, but be certain that the highest-weighted stocks are the ones you feel the most confident about.
Of course, do not go off the deep end by having, for example, 50% of your portfolio in a single stock.
Additional notes:
If a stock has a 10% weighting in your portfolio, then a 20% change in price will move your overall portfolio 2%.
If a stock has only a 3% weighting, a 20% price change has only a 0.6% effect on your portfolio.
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