You only need 15 equities in your portfolio

bigfreddiel

its well known that you only need to invest in fifteen different equities in your portfolio - any more does nothing as far as risk and reward go, any less and the risk goes up.

it works for WB - 90% of his wealth is held in shares of fifteen companies so thats good enough for me

so lets get this thread going with your fifteen equities, and why you would invest in them?

cheers

fj

Totton

bigfreddiel wrote: »

...
it works for WB - 90% of his wealth is held in shares of fifteen companies so thats good enough for me

Seems a strange comparator when young Warren tends to own whole companies or at least hold a very influential amount of stock and options, often bought at a far cheaper price than most folk can buy at.

On the topic though, I wouldn't consider 15 stocks enough - I'd most likely end up with too much risk so I'm afraid it is funds, IT's & ETF's for me.

Thrugelmir

My core holdings are also in IT's. Once these had reached a level that I was comfortable with did I start investing in equities directly in sizable amounts. These tend to be smaller companies which far under the radar of the asset managers. Though I do buy these as long term holds rather actively trade them.

gkerr4

not sure there is a magic number - more, its limited by the time you need to spend to keep on top of the actions of those companies.

I currently have 17 holding across ISA and regular trading accounts, this is about the right amount for me - maybe bordering on too many. I have additional stocks to normal as i was trying to shift money from savings into equities and have ended up buying additional companies rather than buying more of existing holdings - mainly this is because it's been a good market year for me so far and there have been lots of opportunities.

sabretoothtigger

I agree you cant just copy WB. He says keep all eggs in one basket and watch very carefully, well that guy was born with xray vision most of us dont have.
Considering his skill to discern quality, specific holding works great for him no doubt but the rest of us have a larger net we must cast in order to fish the markets

I'd say name sectors more then companies. The obvious tactic is avoid favouring that which has already proved abnormally popular which is a WB tactic.
We have the lowest rates and so the most highly prized largest gilt bond market that has ever existed apparently, that'd be a good start to work from maybe

grey_gym_sock

william bernstein disagrees: http://www.efficientfrontier.com/ef/900/15st.htm

having said that, i currently have 16 individual stocks (though the plan is for it to rise to about 20) + 6 ITs/funds.

it does depend what you're trying to do.

i think bernstein's point is that, if you're trying to get a return very similar to the market as a whole, then it's unreliable to buy so few stocks. because there's a very significant chance that your return will be a long way out.

buffett is clearly not trying to get the same return as the market. he would be silly to do that, given his skills.

if you just want the same return as the market, there is a good case for buying a tracker. they are a lot cheaper than they used to be.

some ppl may not want exactly the market return and at the same time not be warren buffett. they're not necessarily making a mistake. though many are

pqrdef

grey_gym_sock wrote: »

i think bernstein's point is that, if you're trying to get a return very similar to the market as a whole, then it's unreliable to buy so few stocks. because there's a very significant chance that your return will be a long way out.

Well if you buy the biggest 15 companies in the Footsie, you can't go that far wrong in tracking the LSE.

And your tracking error will reduce only very slowly as you add more stocks.

If you ignore cap-weighting and put half your money into a different 15 companies, then you can halve your exposure to a nasty accident, though you're twice as likely to have one. This may be good if you have very low tolerance to losses.

But in that case, your biggest enemy isn't the random accidents of individual companies, it's the tendency for the whole market to go up and down together.

The fix for that would be to pick stocks that will buck the trend - hold up while the market plummets, or at least bounce straight back when the hysteria subsides.

Bernstein's logic doesn't seem to follow. He concludes

So, yes, Virginia, you can eliminate nonsytematic portfolio risk, as defined by Modern Portfolio Theory, with a relatively few stocks.

although the arguments he's been presenting seem to be aimed at showing otherwise

It’s just that nonsystematic risk is only a small part of the puzzle.

yes yes

Fifteen stocks is not enough. Thirty is not enough. Even 200 is not enough. The only way to truly minimize the risks of stock ownership is by owning the whole market.

But if we're talking about systematic risk, there is no "enough", because increasing sample size is irrelevant. Not even buying the whole market will help.

(In fact the best chance of sidestepping systematic risk is to take a very small sample. 15 is too many. 1 is best.)

CKhalvashi

15 is far too few IMO!

I've got 28 on the LSE, 8 on the DB, and a further 16 on the Moscow Stock Exchange, plus property, private equity etc etc etc.

Especially at the moment, a diverse portfolio is worthwhile!

CK

srcandas

I have 10 funds and from time to time a smaller interest in 3 to 5 shares ( 15 investments ).

It is managed and not passive, and higher risk. If I had more then I'd be having trouble paying attention and feel I was tied to average global returns - just not me

Bigfred I guess maybe there is something in 15 after all but I think at the higher risk level :cool:

kidmugsy

My pal the retired investment manager made do with eight.

sabretoothtigger

16 on the Moscow Stock Exchange

Holy Moly, do you carry a red book ? Thats adventurous.

I definitely use a fund for countries I never have and probably never will visit.
Saying that BP is 20% or more in Russia, so anyone in Ftse is a fan of Putin by default
It also explains why BP is cheap for the income it keeps giving