Sir, how many stocks should I hold in my portfolio? One of the community members asked me. This is a question which I get often. So thought of sharing quick shots on the same.
There is no defined rule about the number of holdings in the portfolio. However, there are certain guidelines that you can follow. Remember that, these are just guidelines. After all, it is all subjective.
1. At least have 2 stocks in the portfolio from different sectors to diversify the portfolio.
2. The more stocks you hold, the overall risk reduces. However, it has been observed that additional diversification benefit, which increases with the addition of new stock in the portfolio, becomes minimal after 20-30 stocks. It is, hence, recommended that an investor should keep the number of stocks in her portfolio within these two boundaries of 2 and 30.
3. Every portfolio requires regular monitoring. Reading news regarding all the stocks you hold can be difficult at times hence the investor should have only as many stocks that she can monitor effectively given the time & effort, which she can spare for her portfolio. You should be able to review your portfolio once in the 3 months.
Advice from a legend –
The legendary investor, Warren Buffett advised investors to have concentrated holdings in his 1978 letter to Berkshire Hathaway shareholders:
“Our policy is to concentrate holdings. We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts.”
If you ask for our personal advice, don’t hold more than 30 stocks in the portfolio and diversify as much as you can in order to reduce the overall risk of the portfolio..!
– CA Shantanu Paranjape
Founder, Arthology
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