Dear Dhina
I may be bit offshoot to your approach, portfolio concentration (number of stocks within a portfolio) unfortunately isn’t a straight forward answer for any one. I can share what I am doing all these days:
First all your purchase should be within your circle of competence, how do I know circle of competence…need bit of exercise if you havent done it. I was just trying to explain in another thread.
A portfolio concentration to me depends on six factors for my risk appetite:
- Competitive Advantage of a Company
- Quality of Management
- Risk Management (financial, operational, compliance and strategy)
- Future catalysts for business
- Margin of safety (I use mostly EPV, Asset reproduction, Franchise, base case, EPS growth…some relative valuations like PBV, PSR, PE just to see the price behavior against fundamental growth)
- Special situation (spin off, distressed asset, hidden asset and so on)
My first band of stock is restricted to 5 stocks constitutes 70% of portfolio. They excel on all criteria to my assessment on above six.
However concentrated portfolio requires a lot of documentation, analytics,…I m sure you are doing them.
Happy investing 