I think the point about the 15 is that it takes a lot of time to properly research companies enough to have the edge over other people, so I think itās a compromise between having a small number so you can spend enough time to ensure theyāre still quality picks and large enough for diversity in case one has big problems.
Specifically, heās saying that if half the companies are just average because you didnāt research them well, theyāre pulling down the rest of portfolio where you did put in the effort.
As you get to riskier companies, you need to diversify over more companies, because you might be looking for 500% growth in one company and the rest failing entirely compared to stable markets where you might get 0-20% growth across all of them.
Thatās a fair point.
What I had missed is you couldnāt just do your research once and accumulate more companies over time; you would need to regularly research your existing holdings to make sure they continue to be good investments.
This is very important, the estimates that led me to buy some stocks would now strongly suggest a sell. Itās important to revisit the assumptions in those models after some time (and especially if the price has grown a lot) and decide if the new value is justified by revised earning potential or if it has become a sell.
Iāve spent ~2hrs updating my models for ASML and TSMC recently and they only have about 6 SKUs, I canāt imagine doing that for 30 companies with many more products.
Iām new to investing, but I think my long term approach will be to divide the money I put in, and the returns, in roughly this way:
40% in a few ETFs - most in relatively standard fare subject to good due diligence on my part, and then maybe a quarter of it in a slightly more conviction-driven direction.
30% spread across a maximum of 10 somewhat diverse, equally weighted stocks where the long term fundamentals look good and where I understand at a base level how they make their money and why they are well positioned within the industry (this is the hardest bit and thatās why I want as few stocks in this bracket as I can credibly go with). Changing a position in these stocks should be a relatively big call because the idea is that Iām backing companies I understand to on average outperform their industry (without that outperformance needing to be earth-shattering).
20% where I target maybe a dozen give-or-take stocks in volatile sectors, where Iām managing them somewhat more actively. Iād evaluate them more frequently. On the one hand Iād be more willing to sell than the ones above if I think short term growth is more of a bubble than a trend and I have a suitable buy lined up, but the whole point of going for high risk is that youāre looking for an instance of āexplosiveā growth or 2-3 of āgreatā growth to cover off some near-certain duds.
10% completely free hand and very much a short term outlook - not day trading but short term. Stocks where I feel the market has overreacted and will bounce back, possibly in short order. Company restructure and/or special dividend situations where I believe I have a feel for how it will play out and that I can make a tidy profit, and am relatively confident that I can time things to break even if Iām wrong, that kind of thing.
So my portfolio would probably be around 25-35 holdings at a given time. But why itās that number is more important than the number IMO.
Have you read this thread? Diversification is not an opinion, itās just math. Since youāre at least 40% in ETFs, your diversification goes into the hundreds or thousands of companies anyway, which should reduce the unsystematic risk substantially/fully.
Welcome, @pennyshares Tesla is not an āold stockā, itās still very new and potentially volatile. Iād suggest the forum is not the place for financial advice.
Seek advice on investments from a qualified financial adviser or do your own research. While forum members might give their own opinions it shouldnāt be seen as financial advice. Read the forum rules.
Without any knowledge of you, youāre goals, risk appetite, how long you want to be invested and if you have any preferences as an investor there isnāt anyone who can help you. In many ways itās a journey you need to go on yourself but you donāt need to grope at the investing world alone with no Sherpa. Freetrade have a few good articles here Learn about investing with Freetradeās guides and that should be a good start.
For my two pence (cents if you invest in American stocks)
Diversity is king and the easiest way is a good ETF (exchange traded fund) these charge a small fee to keep it balanced and track the chosen target as closely as possible. Some can be broad VWRL etc and some can be quite specific. Start board and go from there.
Donāt let it take over your life, keep it simple and try not to check 3 times a day. Often the best decision you can make is not to trade.
Take your time. If your horizons are in years or decades then waiting a few days to read an extra article isnāt going to kill you.
Hi Alan, you shouldnāt seek out stock picking advice online, from me or anyone else. Just to address the matter at hand I would strongly disagree that Tesla is a āgood solidā stock, itās speculative - for reasons well summarised in the video below:
As you are (probably) new to investing I think the first thing to do would be to look at very broad financial education to start with. Before you even start think about individual stocks you should think about your financial goals, which will determine the asset classes and risk factors you want exposure to.
Seek advice of educated professionals who will not introduce their own biases or interests (intentionally or otherwise) into your investing decisions.
These Youtube channels are run by CFAs/PMs/Financial Advisors and answer almost any question about personal finance & investing without recommending a particular stock, manager or strategy, the later two have a UK focus.
Spoiler alert: at this point most resources will point towards broad, low cost, diversified passive equity funds if you have a long horizon and large risk appetite.
Stock Picking
Really there are no shortcuts, stock picking is a zero-sum game with millions of participants collectively spending billions of dollars on research to win. So you need to do your own research, which generally means coming up with a good estimate of the intrinsic value of a company, which most likely means creating a DCF model.
Aswath Damodaran (a.k.a the Dean of Valuation) is probably the go-to teacher for this and luckily he has posted a lot of videos online which will tell you almost everything you need to know. His Spring 2021 course is the most recent and has 28 sessions.
Hereās the start of one of his older series on valuation
I found it to be a function of time that Iāve already been investing. At the beginning checking is very frequent, but after more than 10 years now, I rarely check my portfolio outside of buying more (I do hang out here a lot but donāt check my freetrade portfolio haha).
