How many stocks do you have in your stock portfolio?

Do you have concentrated portfolio as practiced by Warren Buffett, or do you have a well-diversified one?

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The more concentrated the portfolio, the greater the return but the risk is also higher. The more stocks you have, the smaller the risk but the return is also smaller.

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How do you find the balance?

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Studies have shown that the benefits of adding stocks to a portfolio decrease with the size of the stock portfolio. The chart below extracted from “A Random Walk Down Wall Street” by Burton G Malkiel illustrates the diminishing return feature.

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There are other studies that show similar pattern although they differ in the number of stocks when the return starts to diminish. These ranged from 10 to 40 stocks.

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That is why I target 30 stocks in my portfolio. Of course, life is not so simple as the studies assumed some correlation between the stocks. In reality, this is not true.

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Secondly, many studies are based on a random selection of stocks. In practice, stock selection is not random.

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But I have not found a better theory for a bottom-up stock picking portfolio. For more insights go to “Baby steps in constructing a stock portfolio” https://www.i4value.asia/2021/01/baby-steps-in-...