We all do agree that the purpose of owning more than 1 stock is “Diversification”.
But , How many stocks should be there in a portfolio have been the question where’s there have never been a straight forward answer.
However, there should not be so much of stock holding that diversification become “Diworsification” a term often used by “Peter Lynch“in his books.
So What is Right Number Stocks in a portfolio ?
The market veterans have thrown some light on what is right number of stocks in a portfolio .
So who is right ?
In some way all are right. How so ?
The investors are divided into two parts other than promoters of a Company
- Retail Investors
- FII’s & DII’s
It is important to understand in which category you fit in.
Right Number of Stocks for Retail Investors
If you are a Retail investors you could be from low to middle income group to high net worth individual .
Low Income Group
The low income group earns in between Rs. 3-6 Lakhs per Annum .
Ideally you’ll be left with the In hand salary of some where in between Rs. 20000 to Rs. 35000 monthly of which you’ll be able to invests Rs. 2000 to 3500 per Month.
The Advise of C T. Munger & Warren Buffet can be ideal for you.
However, the best would be investing a good Mutual Fund by splitting the amount in half in two mutual funds.
If you want to invests directly then don’t emphasize just on one stock and also once you reach a size able position say Rs. 50000 in a stock try to add more to your portfolio since this somewhere near your one-two month salary.
If don’t know the fundamentals of investing go with multi-cap mutual funds & Nifty/Sensex Index ETF‘s.
Middle Income Group
The middle income group earns in between Rs. 6-18 lakhs per annum. Through Tax planning & investments for 80C you would be left with some where in between Rs 36000 – Rs. 100000 monthly of which you’ll be able to invests Rs. 3600 to Rs. 25000 per month.
The Advise of Warre Buffet & Benjamin Graham can be ideal for you.
However it will be better if you could split between Mutual Funds (Inc. Index Funds) & Direct Investment.
Start majority (75%) towards Mutual funds & rest through direct investment if you know the fundamentals of investing else go with 100% equity mutual funds for 1-3 years.
Once you have understood the game of stock market start moving from mutual funds not entirely to direct investing. (50%)
Start with 6 companies and once you reach size able positions say Rs.50000 in a stock then add more stocks . Now you can move some part of your monthly investment say 25% initially to new stock and gradually increase to 50% once you reach Rs. 100000 in a stock and so on.
High Net worth Individual
They will be having Surplus of Rs. 25000 to Infinite for investments.
Ideally you should hold shares in between 10-15 stocks starting with six no. of shares and gradually moving towards new shares once you reach size able position say 2 months income.
Note – FII’s & DII’s are governed by certain laws and hence there holding are in range of low teens to 100.
You must have notice from above that No. of stocks in a portfolio depends on the surplus money available for investing .
Hence based on surplus money you can target no. of shares in a portfolio however start with at least 3-6 stocks.
I currently hold 14 shares in my portfolio which is expected to go 17 in near future and will remain there so for some time.