Evidence:
is anyone aware of evidence for an optimal portfolio size? Or a kind of receiver operating characteristic curve for portfolio size?
otherwise I can do some research and come back to the group just for kicks
This is something I have wrestled with and over time have come to feel more comfortable with a diversified approach.
I have not been successful keeping a consolidated portfolio IRL. My previous consolidated experience has unfortunately placed me in the lower end of success with a consolidated portfolio often underperforming the market.
The sweet spot for me is a diversified portfolio which presently seems to be around 25 shares.
Below are my personal Portfolio entry rules that I divided into what I call my personal ABCD.
PORTFOLIO:
A - Aspirational (0.5-1.5%)
B - Building (1.5-5%)
C - Cashing in (5%)
D - Dying (dividend wonders) (2.5-5%)
The percentage refers to my value commitment as a percentage for each share in this class within my total portfolio.
ABCD - Defined:
A class - are the aspirational shares where the business case seems like it’s onto something of a winner. Ironically I think my success in this area has improved with a more diversified approach. However, I would say joining SM has no doubt helped!
—Eg: M7T
B class - share holdings are the exciting part of the portfolio. Shares that are starting to show promise. It’s a nice feeling to see the ones that move from aspirational to this stage.
—Eg: ABB
C class - shares may or may not be paying a dividend but have proven they have something to offer and are profitable and continue to grow.
—Eg: PLS
D shares - I term dying (humour is important to stay sane). I also these as a proxy to cash and are slower growing (CG) shares but provide a dividend return significantly higher than cash in the bank. At present returning between 8-10%. I have been taking advantage of the market to add to this area to improve long term returns in shares I hold that I believe are undervalued.
—Eg: HVN
It’s just something I use IRL and has helped me improve my returns.
I hold some ETF but I don’t follow a core and satellite approach and just feed them into my ABCD model.
Added to that my SM portfolio allows me to research, explore, move outside my comfort zone or invest in things sometimes with that I have less commitment. I might miss out on some gains but it has improved my patience.
@GazD , don't forget that after you have found your top 10, the next 10 and so on...are not so top....therefore more likely to be a miss than your top 10. That’s why your top 10 may take the lion’s share of your cash, and the rest take a smaller % as the risk is higher so you take a smaller bet.
If you go back to after the COVID crash, there was a time you could buy a lot of stocks as they were all going up, so the skill level was far less. Currently the market is waiting patiently for good things to happen and the bulls have a run. So for now, you need to be very picky and keep a close eye on things. Buying is risky.
Another issue is whether you’re a fundamentalist and to my mind that makes you a longer term holder, as you need time for things to happen, or are you more of a chartist looking for shorter trades. The main thing here is are you a patient person or an impatient person. I am the impatient type and only have holds over a couple of months if I am waiting for big things to happen. I prefer to find short term trades of less than a month, make a bit and then leave something for the next person.
I also know quite a lot about quite a few businesses but let me assure you, Mr Market doesn’t hold out the same hope at the moment, so I am holding on and still believe
.
This morning CLX was flagged up elsewhere as a potential good buy after a good announcement from them. If you have a look at the chart it says little but up, and if you look at the daily chart you can see there was not much leakage aka insider dealing before today, so that adds to the positivity. Currently price is an all time high too.
My point is that there is probably an easy 10% in this in a fairly short period of time, so that would shift all those less attractive possibilities on your watchlist to the side and see you putting in a few bob here. So is this 60% likely to go up….my view is yes, is it in my top 10, no, but can I make 10%, yes.
Now if you’re a long term holder, all of this is maybe irrelevant. But as I mentioned to @Strawman in a message, there is more than one way to skin a cat and for me, the only motive is to make more than I started with and enjoy the good days and go to golf on the bad. Now I just need to get the stick ready to hit myself on the side of the head when the market tanks and I should sell everything and wait.
I’ve read and listened to a lot of investors speak about overall strategies and approaches to investing.
one of my favourite lists is the motley fool money podcast hosted by Scott Phillips and our very own @Strawman.
A frequently mentioned quote is the Peter Lynch quote ‘in the business of investing if you’re any good you’re right 6 times out of 10’
this being the case, how do those of us with concentrated portfolios justify this… for example one very well respected member of this forum (and the chief bottle washer) maintains that he has 90% of his stock in 10 businesses… let’s assume he is Peter Lynch’s good investor and therefore averages 6/10 successful picks… the error on this in a sample size of 10 could easily mean picking only 2 or 3 winners out of 10 or even none… wouldn’t it be more prudent if you believe you average a 60% chance of ‘winning’ to load up with more rolls of the dice?
one opposing view I suppose is that this forces you to invest in your top 20 or 30 ideas in place of your top 10…
Another point for concentration I suppose is knowing the businesses better than the market may give you an edge but how many businesses is this really possible for…
curious on views on concentration versus diversification