In valuepickr forum and multiple books mentions a retail investor should own no more than 5 stock (number varies between authors). When I looked at the same investor they seem to have owned more than 5 at any point in time. Even Warren buffet mentioned several times, all you need to do is selecting only 20 stock in your life time. but if you look at his portfolio over 50 years span, he selected so many stocks. in fact some year, he selected more than 5 stock. you may say company and retail investors are different but I have a different argument. Owning number of stock for retail investor is highly debatable. I highly value this forum and your opinion. Please share your ideas regarding two things
- Number of stock for retail investor
- Number of sectors to be focussed.
If you read careful what buffet gave was an example about the mindest while picking stocks. What he said was that imagine you have a pinch card with 20 slots and you can punch only once for each slot. So select stocks keeping this in mind.
Also keep in mind that with the kind of access to funds he had he has only picked 5 stocks per year. That is a huge achievement in itslef.
To answer your question , I personally keep 4-5 stocks and may switch as per the story of the stock playing out. I have switched within months if I feel the story has changed. If the story and undervaluation remains I have held on for years.
Sector is not as important to me but understanding the stock is. I never buy from the sectors I don’t understand, that includes financial and pharma. So I miss out on a lot of multibagger stocks. This also forces me to invest heavily in the stocks I do understand within my cirçle of competence.
Every statement has a context. Trying to understand any such statement outside the context can be misleading.
Lets look at another statement of Buffett from his1993 Berkshire Hathaway Shareholder Letter
By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”
Here he is saying that index investing can be smart for some people. Now if the chosen index is SP500 the investor is in effect putting money in 500 companies. Doesn’t Buffett contradict himself?
Buffet’s close friend Bll Gates has made most of his fortune in ONE company. Most people on Forbes 400 have made most of their wealth in one investment.
While this may look contradictory it is not. If you know one company like Bill Gates does Microsoft, being the founder, you are better off betting on that one company. OTOH, if you do not have the time or the inclination to do any work/research you are better off in an Index fund or a mutual fund.
Depending on where you are on that scale in terms of Time/Work/Knowledge/Temperament/Capital you can decide the amount of diversification that you need.
There are no hard and fast rules only general guidance.
Thanks a lot guys for your valuable input. For argument sake, I am taking two of the best investors in the world. Warren Buffet and Peter Lynch
I just checked number of stocks owned by Berkshire is 49. About Peter Lynch, you know he owned half of the total number of stocks listed because of Fidelity was too big to accommodate. When you read his books, he keep discussing about the more than 20 odd stocks in his excellent two books. I can understand he is merely trying to explain the situation he encountered in his life. But none of them at any given time had mere few stocks in their portfolio.
Both follow the portfolio model of long, short term investments.
For e.g. buffet bought several stocks and kept only for a year or two. on the other hand he kept Coke, Wells Fargo etc for very long term.
Talking about the 20 slot punch slot, but he didn’t follow his very own idea irrespective whether he is retail investor or buying for his company.
@pankajs, you mentioned about having one company (Microsoft) or the index. one is too risky and all is close to your bank interest. What I am looking for is balance between extreme.
When I started investing, i read the investing lessons given in ICICI website ( that time it is only one website after that it is separated as icici direct.) There they have clearly mentioned for what capital, how many stocks is sufficient. that means, i remember 2-3 stocks for 5 lakhs capital etc., overall it is how much capital we have. most of the MFs maintains maximum 40 stocks for 300-400 crores AUM.
in one of the forums, one investor mentioned invest minimum Rs2000-Rs5000 in one or two stocks in each sector.
Now it is your choice, how many stocks you want to keep.
There are no clear or straight forward answer. If you read Warren Buffett’s speech at Columbia university search for “warren buffett + Columbia university + Graham’s super investor’s” : it shows how different individuals with totally different style of investing made money. With concentrated portfolio, with diversified portfolio, different market capitalization etc. The key learning is to understand an individual’s ability and what ever they find as convenient. This part is the true art. Once you achieve this it really doesn’t matter how you build your portfolio. You will make money over time.
I will look into the video you mentioned, probably I would have seen it already. It is always worth to revisit Warren Buffett speeches.
Thanks all for the contribution. Can I ask one more question on the same topic.
Say you have 20Lakhs to spare for investment. You have decent knowlede in investment and you want to completely revamp your investment. How do you define your portfolio. What would be your model. I am not asking individual stocks or sector to invest. Just a model portfolio.
Since I asked the question, I would like to define my model portfolio.
I will split my portfolio to three groups
Long term investment:
Amount to spare: 12 Lakhs or 60%
Total number of stocks: approximately 10 stocks, worth 1 to 1.2 lakh each
Porfolio shuffle: Revist the story every 6months, and If there is significant deviation from my original story, I will reshuffle with next in line Long term investment.
Selection: usually Midcap to Large caps stocks
Short term investment:
Amount to spare: 5 Lakhs or 25%
Total number of stocks: approximately 5 stocks, 1 Lakh each.
Porfolio shuffle: Revist the story every 3months, and If there is significant deviation from my original story, I will reshuffle with next in line short term investment.
Selection: usually small cap to midcap
Cash or FD:
Amount to spare: 3 Lakhs or 15%
Based on the current market, either I will be on cash or short term FD
Thanks again for your contribution.
Buy quality caps large, mid, small or micro based on your risk exposure. I like to keep between 15-20 stocks mainly consisting of large caps, mid Cap, small Cap and micro Cap. Currently I have 15 stocks in my portfolio. I am not a top down investor but more of a bottom up stock picker which may be contrarian for a short term perspective. I agree that sector tailwinds can give you phenomenal returns in short term so less than half of my picks are sectors in demand and the rest contrarian. However, If valuations are not reasonable I tend to avoid the favourite sector until valuations become attractive. I am currently loaded up on Pharma.
Don’t worry about current volatility as this is an opportunity to accumulate. As Warren Buffet famously said, Market is like a voting machines in short term but it is a weighing machine in Long term. I like to stay 100℅ Invested. However, keeping some cash on the table can be a good strategy especially during speculative times like this one. I like to keep cash before major speculative triggers. I am a buy and hold forever investor unless there is a serious compromise of management integrity. Keep a core portfolio for long term and a satellite portfolio for change in story. I buy on dips given good opportunity in core portfolio. Satellite is more of tracking if story changes for a long shot. I tend to not sell my satellite stocks even though few of them may give me negative return on yearly basis. One Year is a short term for me. Courage and Patience is the mantra for me and it is working over time for me
Thanks for the detailed explanation. you mentioned bottom up stock picker. Does it mean, you will pick stock irrespective of the economic cycle. I am more of long term investor. I load up stocks when the market is down and stay hibernated during the entire volatile period. When I find the market going down (1000 points or more), then I will look for opportunity. I am not sure whether it is right and open for comment
You mentioned half of your portfolio is contrarian type stocks does it mean when the same stocks moves up, will you keep invested or book a profit after reaching certain % profit. I tried to do the same but now, I ended up with 30 more stocks and I don’t want to sell either of them.
my mistake Thanks a lot for posting the material.
A true investor with a long term view stay invested irrespective of cycles. I don’t worry too much about economy as long as the country has sound leadership, good company management and consumption story. You should book profits wherever you think the valuations are over stretched. Normally, earnings catch-up with valuations. Market is inefficient in short term but efficient over a long term.
In a bull market everyone appears to be a smart investor or looks like one but only during bear phases you need to have the courage to stay put in the market. I have not been through bear market yet myself so I like to call myself half investor. I have identified that I have high risk taking capacity which goes well with my temperament. So you should invest based on your personality. All I can say is Indian markets have a Long way to go and keep your faith in Indian entrepreneur talent. The wealth transition has already started from west to east and it will continue barring few bouts of disappointment.
Read a lot and become a better person. Learn from other people and their experiences as Charlie Munger mentioned many times. It is not wrong to be clone of a great investor whose temperament matches you.
PS: I am learning from this great forum and other wonderful Investors.