You only need 15 equities in your portfolio

grey_gym_sock

pqrdef wrote: »

Bernstein's logic doesn't seem to follow.

i think he's saying that you may be able to buy enough stocks to get the standard deviation (i.e. volatility) of your portfolio down to a similar s.d. to the whole market, but that it's not only s.d. that matters: you may have a low s.d. but long-term returns that massively lag the market.

he suggests that the reason for this is that there are a few (perhaps 10) "superstocks", which collectively provide a significant part of total market returns. if you don't buy any of them, you're likely to do badly.

buying the 15 biggest companies is not going to avoid that problem. the "superstocks" may well end up among the biggest 15, but will probably start their run of outperformance when they're much smaller.

now, i wonder if these "superstocks" are mostly huge technology companies (he gives dell as an example), which we lack in the UK. (could ARM become 1? an idle question, not a share tip .) so it's possible that his analysis doesn't apply to the UK market.

DunPin

CKhalvashi wrote: »

I've got 16 on the Moscow Stock Exchange

May I enquire as to how you acquired them? I have tried looking for a broker however in the UK it seems nearly impossible so I'd presume you either found an advisory firm in the UK or a firm in Russia? any suggestions of firm to use would be welcome

pqrdef

grey_gym_sock wrote: »

he suggests that the reason for this is that there are a few (perhaps 10) "superstocks", which collectively provide a significant part of total market returns. if you don't buy any of them, you're likely to do badly.

Well if you pick 15 companies with a pin ("doing your own research") and just stick with them, you won't track the index very well.

To get best results in tracking a cap-weighted index, you get the biggest 15, in weighted proportions, and keep rebalancing. Those "superstocks" won't affect the index much while they're small, and when they get big, you get in. If they go ballistic while you're not in, you'll miss out - though of course that cuts both ways.

The price of diversification is that you miss out on good luck as well as bad. But your success in achieving that aim isn't necessarily measured by how well you track an index, which might itself be more influenced by accidents than you would like.

I suspect Bernstein sells trackers.

IronWolf

I would agree that 15 is enough. I hold about 10 stocks but have cash on hand if I find more stocks I like.

If you choose too many stocks then your best picks simply get diluted. Its much better to find a few good ideas and bet big on them. That's what most successful investors have done.

Nicholas-bloody-Parsons

Just reading the Anthony Bolton book. Despite his fund holding 200 stocks, he says no more than 50! But goes on to say he limits any one company to a maximum of 4% of the portfolio. Which suggests to me that he could hold as little as 25 companies.

JoeCrystal

My humble opinion is twenty. Nice number, 5% each. If one goes bust, it would not have that much impacts hopefully.

Cheers,
Joe

Thrugelmir

pqrdef wrote: »

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

There's no point in holding both Shell and BP. As the stocks are too closely correlated, most likely will both move in the same direction when crude prices change. Ideally the 15 need to be in totally unrelated sectors.

dryhat

bigfreddiel wrote: »

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

Yes and one of those companies has been found guilty of laundering over $400 billion ($400,000,000,000) of Mexican and Columbian drug money.

Not the sort of person I would use as a role model.

DunPin

dryhat wrote: »

Yes and one of those companies has just been found guilty of laundering over $400 billion ($400,000,000,000) of Mexican drug money.

Not the sort of person I would using as a role model.

Source? I can't see any information about this unless I am not searching correctly.

grey_gym_sock

pqrdef wrote: »

To get best results in tracking a cap-weighted index, you get the biggest 15, in weighted proportions, and keep rebalancing.

if you like cap-weighted indexes that much, wouldn't you just buy a cheap tracker? that method seems like a lot of effort just to buy an even more concentrated index than the FTSE100. many ppl think the FTSE100 is too concentrated in a few companies, so why make it even more extreme?

if you're going to buy 15-ish stocks, it seems more logical to me to go equal-weighted, buy a very broad range of market sectors, and start with the biggest companies but be prepared to go smaller when that's necessary to get access to more sectors. that gives a different kind of diversification to the FTSE100, and, 1 could argue, a better 1.

it all depends what you're trying to do. trying to beat the market is not necessarily a mistake, but, almost by definition, half the ppl who try fail, or more than half when you take into account the higher costs usually incurred in trying.

it's also possible to have different aims, not defined by beating or matching the market. indeed, perhaps that describes most ppl (other than fund managers).