So I logged in to my Simply Wall St account earlier, and was shocked to discover that my shares on FT are spread across 40 different holdings. One of the joys of commission free trading I guess.
I know itâs good to diversify, both across companies, and across sectors and markets. But my question is have I got carried away a bit? Should I be narrowing my scope, and concentrating harder on fewer companies? Or should I just keep adding more every time I see something shiny?
I guess the real issue is weightings. If you have 100 stocks each equally weighted then even if one of them doubles you only add 1% to your portfolio. I operate on the basis that if my holdings were to grow too large I just end up replicating the market and therefore shouldnât waste my time. High conviction portfolios are arguably the best way to gain wealth whereas diversification is the best way to preserve wealth.
Iâm starting out by having the majority of my holdings in index funds complimented around 20-30 companies. Then once Iâm more competent with stock picking Iâll then probably focus on individual companies.
I guess it comes down to whether you feel like youâre confident enough to be able to beat the market. Studies do show that individual investors arenât very good at stock picking and should stick to index funds or ETFs.
Just my opinion but I pay more attention to the sectors Iâm spread over and if I feel I have a good mix in each sector. And I pay attention to the ÂŁ amounts I have allocated to each within the sector eg larger amounts for solid established firms and tiny amounts for wild cards etc.
I do not currently hold many, I am very liquid at the moment, but I do have a plan of investing in around 70 companies and 6 ETFs once the market dips again.
My idea is to have about 25% of it invested in around 50 companies, creating my own âETF equivalentâ so to say (average of around 0.5% each) within an ISA.
The biggest chunk, 65%, I intend to invest it in around 20 companies, which equates to around 3.25% of my portfolio each (ranging between 5% and 2%).
The final 10% will go to 6 ETFs, which I intend to grow/add to with time. The proportion of ETFs will growth with time.
This is a topic that @adam and @Viktor touched on during the AMA on Tuesday. I was relieved to hear @adam would like to see more ETFs available on Freetrade. Personally, one of the things keeping me from a balanced and diverse portfolio is the lack of ETFs. Particularly for the European and Asian markets. Iâm hoping @Viktor can add some more ETFs with the next batch of UK stocks!
I put in two ETF requests yesterday if anyone would care to vote
Currently my portfolio has a mixture of US/UK stocks (approx.14) and ETFs (S&P500, FTSE, Japan)
The consensus from the vote seems to be 40 is too many. Need to control my urge to buy - unfortunately you have made it so easy Iâm like a kid in a sweet shop
Iâve made a deal with myself, that I wonât buy any more companies without liquidating an existing one - 40 will be my ceiling.
ISA Split
37% Tech
19.5% Other (ETFâs)
13.2% Cars
11.6% Energy
5.6% Finance
5.3% Entertainment
4.6% Property
Then the lower percentages on Mining, Food & Drink, Travel.
Hopefully that is considered a fairly reasonable spread! Any opinions welcome
Not dissimilar to mine in terms of sectors. Iâm slightly less tech heavy and more property though, and cars is only as high in mine due to Tesla going mad
I have 32 in my ISA and 17 in my Basic. Health is the Biggest sector in my Basic at 29% followed by Tech at 21%, in the ISA itâs Finance at 26% followed by Other (ETFs) at 23%
William OâNeil is one of the most successful investors ever and his books have been read by millions. He has a bit of a cult following in America with IBD.
His portfolio size rules are one of the most important aspects if you want to be able to achieve big returns.
In a selloff everything tanks. With fewer holdings itâs far easier to be out of the market then if you have 20+ stocks.
Obviously this approach is only if you want to be an active investor who picks their own stocks and are confident in your ability to pick the best opportunities.
Everyone else should just be investing in funds or trackers.
Another big believer in concentration is Warren Buffett. Charlie Munger even more so. In fact any investor who consistently outperforms will be running a concentrated portfolio.
Thatâs fair enough, but whatâs the magic behind the 40 number? As Iâm sure you donât need me to tell you, diversification isnât a out how many stocks you own, itâs about how similar your stocks are to one another. I used to be at around 50 with about six different US banks. Iâm now down at 27 but axeing 4 banks to being me down to two hasnât done any great violence to my diversity profile.
I feel like âwell-diversifiedâ is all relative. Obviously youâre spread over a decent range of industries. But without seeing your holdings, itâs possible that someone could be more âdiversifiedâ than you with two ETFs. Main thing is that youâre happy with your portfolio as a representation of your view of how things are going to go over the time frame that youâre planning on investing in. Good luck with it
