How many stocks should you own in total?

[RandomInvestor]

Hey guys so I had a question,they say don't hold more than 10-15 stocks because hard to manage. but what if the market crashes and prices are really cheap and u have reviewed these companies before hand and the bargain you been waiting for is finally here, should you buy a bunch of stocks considering its cheap?

Or is it a matter of how diversified you want to be? I believe portfolio allocation is based on how much money you have? But since I only have 10k no where near enough to diversify should I just build small sections until I actually have the money if that makes sense? But seems risky, say I want to have a diversified portfolio of 300k, it seems dangerous making for example 30k of them on stocks only and building up cause its putting all your eggs in one basket. Should I diversify what I can with 10k and diversify more when I have more money if that makes sense?

So say I got 10k and I use it to buy stocks,bonds,etfs. I can't buy much but when I get more money I can add to it.

 

[systematic]

The only reason you would (or should) concentrate your portfolio (e.g. own 10 or 15 or 50 stocks) is pretty much because you are trying to beat the market average return over the 'long run'.

Most people (forum posts giving an otherwise impression notwithstanding), will not beat the market.

You posted this in the beginner's lounge, so I'll give my standard opinion: that someone wanting to spend less, earn more, save more and invest well etc. can and will do more than fine with a disciplined investment plan that simply uses index funds and the like (which can even include some active managed funds).

In other words, you just don't need to beat the market. Invest lots of dollars as young as possible, and you'll do well; saving your expertise for growing in your career etc.

Your question - how many stocks should you own - depends on your goal. Only someone addicted to the idea of beating the market needs to think about that. With your $10k you can own the whole market (or whatever).

You can do lots with your 10k. Reading your last sentence again - you can totally diversify your 10k across lots of stocks (or assets), by buying some funds or etf's etc. Keep saving, keep investing.

You don't need to invest in one or two stocks and build from there - that would be silly and needless. Invest your 10k hard earned (and saved) and keep adding. Now get at it!

 

[Wysiwyg]

Here is a simple example of position sizing. I have 100k and I want to "diversify" by allowing myself the option of buying as many stocks as I can. For example a position value of 1k allows approximately 100 positions (consider brokerage on every position) to be taken with our 100k bank. Below is a simulated test using two examples. The 1k position value and a 10k position value on the the left.

See how the win/loss sizes are relative to the position size. Also if you think you're gonna pick bottoms at "value" and sell at tops when "over valued" then you will be an extraordinary individual. It is all about how much risk and how well it is managed.

Starting Bank = 100k

10k position value left | 1k position value right

 

[Wysiwyg]

Better give you the buy and hold scenario regarding position size. On the left is the 10k positions and on the right is the 1k positions.

 

[tech/a]

I'm more for concentrated effort

Become an expert at one instrument or share

Indexes,gold,currencies, a share or two

As Craft pointed out on the GMA thread the
Stock basically marked time----but with dividends
Returned around 40% in a year

Good post systematic

Wysiwyg where is brokerage?

 

[RandomInvestor]

The only reason you would (or should) concentrate your portfolio (e.g. own 10 or 15 or 50 stocks) is pretty much because you are trying to beat the market average return over the 'long run'.

Most people (forum posts giving an otherwise impression notwithstanding), will not beat the market.

You posted this in the beginner's lounge, so I'll give my standard opinion: that someone wanting to spend less, earn more, save more and invest well etc. can and will do more than fine with a disciplined investment plan that simply uses index funds and the like (which can even include some active managed funds).

In other words, you just don't need to beat the market. Invest lots of dollars as young as possible, and you'll do well; saving your expertise for growing in your career etc.

Your question - how many stocks should you own - depends on your goal. Only someone addicted to the idea of beating the market needs to think about that. With your $10k you can own the whole market (or whatever).

You can do lots with your 10k. Reading your last sentence again - you can totally diversify your 10k across lots of stocks (or assets), by buying some funds or etf's etc. Keep saving, keep investing.

You don't need to invest in one or two stocks and build from there - that would be silly and needless. Invest your 10k hard earned (and saved) and keep adding. Now get at it!

Yep that's the plan save as much as possible I rarely spend money on stuff, lately saving has become an addiction lol, I pretty much am able to save over 90% of my pay each week.

 

[RandomInvestor]

Here is a simple example of position sizing. I have 100k and I want to "diversify" by allowing myself the option of buying as many stocks as I can. For example a position value of 1k allows approximately 100 positions (consider brokerage on every position) to be taken with our 100k bank. Below is a simulated test using two examples. The 1k position value and a 10k position value on the the left.

See how the win/loss sizes are relative to the position size. Also if you think you're gonna pick bottoms at "value" and sell at tops when "over valued" then you will be an extraordinary individual. It is all about how much risk and how well it is managed.

Starting Bank = 100k

10k position value left | 1k position value right

View attachment 68511

I don't really see what I am reading like I undestand the content, but its showing a decent return on left side and a less than mediocore return on the right?

 

[Klogg]

Yep that's the plan save as much as possible I rarely spend money on stuff, lately saving has become an addiction lol, I pretty much am able to save over 90% of my pay each week.

That's the hardest part IMO. NOT doing something (spending in this case) is much harder than doing an EXTRA thing - and it's counterintuitive that this results in greater success.

If you're serious about finding your investments and have the time, the number of holdings you have will be dictated by your understanding of each of them and your risk appetite to a degree.

I know an investor that holds 90% of his investable capital in 3 stocks. His total portfolio has about 5-10 holdings at any given time.
I don't have enough confidence in my abilities to concentrate THAT much. I generally hold 10 positions of similar size, and have a maximum that each position can get to (relative to the entire portfolio). I review it monthly and adjust accordingly.
As systematic has already mentioned, this is why I do it:

The only reason you would (or should) concentrate your portfolio (e.g. own 10 or 15 or 50 stocks) is pretty much because you are trying to beat the market average return over the 'long run'.

So far it's working, but it doesn't mean I'll continue to beat the market.



Ultimately, there's no one right answer here... The outcome will likely be determined by:
- how much volatility you're able to endure without any emotional reaction (e.g. a single holding will be far more volatile than 15 holdings, generally speaking and may force you to sell)
- how many companies/investments you can truly understand at any one time... (a lone investor trying to truly understand 100+ companies well is making a rod for their own back)

and probably a number of other factors that I'm forgetting.


And on the other side of my "if" from earlier - if you DONT have the time, I would suggest a form of index fund would be the best approach... That said, there are downfalls to some of the Aussie indices you will need to be aware of (e.g. Banks make up a big chunk of the weighting for ASX200)

 

[Wysiwyg]

Wysiwyg where is brokerage?

In the brokers bank account Tech. For testing it is $20 per order.

I don't really see what I am reading like I undestand the content, but its showing a decent return on left side and a less than mediocore return on the right?

Intended for comparison. It is a simple way to represent the mathematical stuff.

 

[Boggo]

In the brokers bank account Tech. For testing it is $20 per order.

Intended for comparison. It is a simple way to represent the mathematical stuff.

I think this may be the bit that tech/a is referring to, would have a significant influence on the outcome.

 

[Wysiwyg]

I think this may be the bit that tech/a is referring to, would have a significant influence on the outcome.

Yes, the less transaction costs the better.