How many direct holdings in a portfolio

I have over 40 different companies in my Australasian component of my portfolio. I think this is far too many. What is the optimum number for direct share holdings?

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Originally Posted by voltage

I have over 40 different companies in my Australasian component of my portfolio. I think this is far too many. What is the optimum number for direct share holdings?

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42

Best Wishes
Paper Tiger

somewhere between 18 and 25 is about the optimal amount.
Attachment 8766

I hold 3 currently and not interested in holding many more than that.

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Originally Posted by couta1

I hold 3 currently and not interested in holding many more than that.

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says the undisputed champion of non diversification ...

Its kind of like being a climate change denier, some people see the weather getting warmer, some getting colder, it depends where you are.
But science, says that diversification is the only free lunch. And the amount of free lunch depends on how many stocks you hold. The reason its not ∞ is because that is cumbersome and marginal returns are diminishing so a healthy balance says 18 -25.
42 is probably too many, but 3 is definitely not enough , though even with 3 there a significant decrease in risk from holding only one stock. But there is definitely less risk (for no decrease in expected return, and marginal extra effort) by holding a few extra shares in the portfolio.

thanks for the comments, I do think 40 is too many, you get to the stage where you might as well hold an index fund

My wife's portfolio is made as follows.11 high conviction NZ listed companies,1 Unlisted company,and 1 traded via the company,and 1 DD [dead duck] in Aussie..
My portfolio is made up of 10 NZ listed companies,1 unlisted company and 1 traded via the company.In Aussie I have 3 reasonable holdings,6 smaller holdings and 15 high risk and 6 DDs.
We both hold 6 of the high conviction NZ stocks,and we both hold the unlisted stock,and the one traded via the company.
I run our portfolios with large holdings in high conviction companies,smaller amounts in companies that appear to be worth while, and very small amounts in very higher risk companies.
So about 65% in high conviction companies, and about 25% in companies that look worthwhile,and approx 10% in higher risk companies.
I achieve good dividends and solid share price growth from the high convicton and worthwhile companies, and have some serious fun with high risk ones,.!
My broker says I am very conservative with my wife's portfolio, and rather aggressive with my own.!

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Originally Posted by percy

My portfolio is made up of 10 NZ listed companies,1 unlisted company and 1 traded via the company.In Aussie I have 3 reasonable holdings,6 smaller holdings and 15 high risk and 6 DDs.

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Thats about 42 hahaha Paper Tiger was right !

There's an academic paper somewhere about diversification and the benefits thereof. As peat states, it is the only free lunch but there is an optimal number of stocks beyond which the additional benefit of a further stock becomes practically nil. From memory, it's surprisingly low, somewhere in the 10-15 band if I remember correctly. I know that I'm well past that point but then my portfolio is more a collection that a scientifically assembled portfolio!

PS I rather like the term "high conviction stocks". ll mine are such!

;)

Peat, I know portfolio diversification is all about risk management but where's the consideration of returns in this discussion?

Say 2 theoretical portfolios - one of 5 stocks returning 20% with a STDEV of 30% and another of 20 stocks with a STDEV returning 7% with a STDEVs of 20% (STDEV roughly from your chart)

I know which portfolio I'd rather have

But then again it's not as simple as that eh

That's where the Sharpe ratio comes into consideration - how much return do I get for every additional unit of risk I assume?

I think you are better to hold 10-15 high conviction positions (if you can find that many) than a higher number of positions just for the sake of better diversification.
Diversification is a free lunch, but only to the extent that you can find high conviction positions and there's little point in buying average companies just to increase diversification for the sake of diversification itself.

Aside from that one needs to consider how much time, research and resources one can apply to closely following and managing their positions. Personally I feel it would likely drive me nutty running my business and having to follow 40-50 companies closely. How could I possibly find enough time after doing that to waste so much time on here :lol:

Was it W. Buffet who described too much of it as "diworseification"?

My portfolio 95 % same as last year with few buy/sells carried out
66% in 2 stocks growth & income
20% in 2 stocks skewed more for growth
6% in 1 for growth & income,low volatility,ready to sell if need the dosh
Rest 3 dibs & dabs dipping my toe in,low conviction
Happy with 30 % ROI this year with low volatility.
Not expecting too much in the coming year if interest rates increase very much

I currently have 16 stocks. 15 NZX and 1 ASX. I only buy companies I know pretty well which is the reason I've decided to stick with the NZX for now.

Personally I find the number works pretty well - I try to stick between 10 to 20 stocks dependant on the opportunities. Within this, half of the companies I consider have good growth opportunities (and are my largest holdings). The others are strong defensive stocks or dividend payers

Out of interest, do you guys hold any managed funds in the context of your above stocks?

I currently hold under ten stocks directly, but total funds invested in shares is split 60% index 40% individual stocks, hence happy to concentrate that 40% into high conviction positions.

Also have NZ property etc

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Originally Posted by JeremyALD

I currently have 16 stocks. 15 NZX and 1 ASX. I only buy companies I know pretty well which is the reason I've decided to stick with the NZX for now.

Personally I find the number works pretty well - I try to stick between 10 to 20 stocks dependant on the opportunities. Within this, half of the companies I consider have good growth opportunities (and are my largest holdings). The others are strong defensive stocks or dividend payers

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I like the cut of your jib mate and pretty much use the same strategy although finding value / high conviction positions is definitely getting harder after such a strong year.

I try to stick to 5 investment stocks, unless there's a compelling reason to add in an extra, ie stocks in play, spin offs etc which are basically short term trades.

Makes researching easier keeping a close eye on just a few companies. I'm happy with the concentrated portfolio approach and not adverse to a bit of risk to achieve a higher return.

Holding 7 NZ stocks at this time ATM HLG IFT MPG OCA SCL & THL. At times will buy in MEL & SPK but only hold short term on these 2.
Held AIR for a while but sold out at just over $3,20. May buy back into AIR later.

I hold 9 U.S. stocks (mostly tech), 7 NZ stocks and 7 passive ETFs.

I plan to increase my passive ETFs to about 50% of my holdings over the next year and keep the 16 stocks to play around with.

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Originally Posted by huxley

Out of interest, do you guys hold any managed funds in the context of your above stocks?

I currently hold under ten stocks directly, but total funds invested in shares is split 60% index 40% individual stocks, hence happy to concentrate that 40% into high conviction positions.

Also have NZ property etc

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I leave most of it up to the managed fund, kiwisaver and my ETF's.
They are about 5x (in total) of my little ASB portfolio that has 14 stocks - 9 NZX and 5 ASX

Add in some Harmoney and private equity stuff through snowball and milford PE fund 2, and thats my non property investment portfolio.

Oh and the lego, can't forget the $14k worth of lego I got.

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Oh and the lego, can't forget the $14k worth of lego I got.

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Don't confuse cost price with value, alistar. It's probably worth many times $14k!

;)

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Originally Posted by macduffy

Don't confuse cost price with value, alistar. It's probably worth many times $14k!

;)

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Nah thats the market price as per bricklink, although you're probably right I just sold set 8275 (motorized bulldozer) on trademe for $550 when I had it valued at $287 via bricklink

also just checked the spreadsheet, $12k, not $14k, dunno why I thought $14k!

Yeah, I'm the same with my sharetrading target 100%+ p.a ..no way I could reach that target holding 40+ different shares ....Only got 4 different ASX shares currently with one making up 70% of portfolio value..

But then I'm a trading ...personal plan to diverse outwards to several holdings certainly not more than 10 no way I'd have the time to study and keep upto date