I'm with you @CanadianAussie; in fact i'd say <3% of companies i look at end up making the grade. Not that many are terrible, but I think you need to be picky.

With only 10 (non-correlated) stocks in a portfolio, you get >80% of the benefits of diversification. At 20 or so, you get virtually the full benefits. And there's something like 2000 companies on the ASX alone. So our job really should be saying "no" the vast majority of the time.

I also think of it like this; when you say "yes" there's always an associated opportunity cost. So the question isn't "is this company worth investing in", rather it's "Is this one of the top 10-20 opportunities on the market right now". I reject a lot of perfectly decent companies not because they are bad, but because i don't think they have a better combination of quality and value with regard to what I already hold (or, at least, I don't have enough confidence/conviction with that particular stock to answer that question).

Keen to hear other's thoughts.

I agree Strawman and CanadianAussie. I also think its good to overlay risk vs reward factor into the question of "Is this one of the top 10-20 opportunities on the market right now". You can filter out a lot of companies if you exclude those that are outside of your personal risk tolerance. And i think risk tolerance comes down to what your desired total shareholder return is. For example if you have lofty goals of achieving 30% compound total shareholder return then you probably wouldn't invest in Sol Patts, even if you thought it was the best company on the ASX.

Similar thoughts @CanadianAussie. In RL I have about 25 holdings but the top 5 represent about 50% of my portfolio and then there's a long tail because (a) I feel I have the time to stay on top of them (b) diversification and, (c) I enjoy the process and seeing how they evolve (and unfortunately when lessons need to be learnt they're best learnt from holding them). I've invested in those holdings after looking at around 400 companies so far. So depending on whether you take the top 5 or the full 25 my hit rate is somewhere between 1% and 6%. "Less than 5%" feels about right.

@CanadianAussie

I haven't thought to put it in % terms, but not a lot make the grade - at the same time many make the grade! I guess it depends on what you mean by look into - screen or deep dive?

I screen out a lot, and I mean A LOT based on my personal rules and circle of competence; no miners, no traditional banks, no direct retail, etc.

I tend to screen further based on my learned '7 questions of happiness' - the usual stuff like debt, management, profit margins, thematic's, etc - no use of traditional ratios though.

This leaves me with a reasonable number which I usually deep dive or focus dive and then buy and hold for a minimum of 5 years, or trade on sentiment. I rarely do not buy in some form after a deep dive or focus dive. I will admit to cross-checking others deep dives where accessible to save time.

My portfolio today holds ~30 stocks, but has been as high as 45 holdings - vast majority in tech - which can see swings in portfolio value of up to 50%!!! Crazy the first time it happened!!

It’s a good discussion @canadianaussie. For me personally it has taken some time to understand exactly what I’m looking for in an investment and why. And even then I have doubts given my lack of experience and look for confirmation or otherwise from others with more experience and knowledge. I think this is something that isn’t discussed enough. That is, what do people look for. What exactly are the parameters by which they deem a company suitable to invest in. Either qualitatively or quantitatively. I think once you’ve got a solid idea about what you’re after, then naturally you’ll become more picky as your process is refined. Percentage-wise for me would be very small.

Great thread. I echo @PortfolioPlus's comments -- I don't think there is a right or wrong approach (within reason) and many of us are bound to have different objectives that we want to achieve investing (balance between wealth building vs capital preservation). Risk appetites will differ so its really interesting to see how different members approach diversifying as a means of preservation.

As for where I fall personally, very similar to you @CanadianAussie -- within the <5% range I reckon, but likely closer to 2-3%. My satellite portfolio definitely seems to be a little smaller than other members here -- I currently have 11 holdings, which is typically where I like to keep it. My super on the other hand has 10 holdings, with 3 of these being ETFs (NDQ, ASIA and ETHI). I obviously lean more towards wealth building than capital preservation due to my own circumstances and aim to (at the very least) beat the market.