All language subtitles for 007 How Many Stocks Should You Own_en

One thing that's often asked and the real key consideration is how many individual stocks should I own,

you know, how many should I have in my stock portion of my overall portfolio?

Your overall performance, I have some bonds, may some cryptocurrency, some cash, whatever but the

stock portion, how many individual stocks should I own?

And the reason that's asked is if you have too few in terms of what you own, then you're not diversified

in your stock portion of your portfolio.

We only have a one or two or three.

You know, you have a lot more downside risk.

You might be investing like these.

Two or three companies are the greatest in the history of the world, but and take much to all of a

sudden have them be the worst companies in the history of the world.

So, you know, that's one of the dangers of having too few.

But the other part is, if you have too many, then you could be over diversified.

Right.

It's it's hard to track.

You've got 40 or 50 stocks.

How do you track that?

How do you keep on top of what's going on with their strategy and their performance?

So it's hard to track that, and there's less potential reward because you're so diverse and trying

to manage then versus something that you want to concentrate on more of your key bets, at least when

it comes to individual stocks.

So what's the what's a good number?

Let me show you some ideas around that one.

Traditionally, what it's always been like here for a long time is the traditional number was always

20 to 30.

Individual stocks you know you want to get somewhere in that number range was always the historical

norm.

As far as you know, what is the answer to that question, 20 to 30?

Then there was a study done by Riley and Brown, and they did it and they found that, you know, portfolios

that contain 12 to 18 stocks provide about 90 percent of the maximum benefit of diversification.

So if you say, Well, I want to get diversified, I want to own stocks in different industries and

different things.

You might need 12 to 18 of them, you know, that are in these different industries, and that can give

you a lot of diversification, about 90 percent of it and makes it easier to track, too.

It also makes it easier to get started to in terms of trying to buy 20 or 30 stocks.

It's easier to start with 12 to 18.

So I'm pretty comfortable with either that number or going higher to 20 to 30, by the way.

And actually, when you start looking at, you know, another way of managing your money, a better,

maybe a a better way me to look at is use that in terms of the cash and reduce your risk is a couple

of other things that have been used out there as well, particularly by more active traders who are

trading frequently.

And one will be, you know, that no holding, no individual stock is more than five percent of your

total capital invested.

You know, so if you think about that, five percent would be 20 stocks, right?

Of all of your total capital, if you had your total cap invested, five percent, there would be 20.

So for example, if you had ten thousand dollars or rupees or euros or pounds, whatever you have invested,

you know, then you're looking at that, you know, five hundred per stock, right?

So you have these smaller amounts per stock, you can even go smaller than that and say, OK, no holdings

can be more than two percent of total capital invested, which would get you to 50 right now.

You got 50 different stocks because you've got, you know, 200 units or 200 dollars or whatever your

unit is on a $10000 investment thing, you know, per stock now, if you had $100000 invested, would

be two thousand dollars rights, that's two percent.

Now this is a particular popular with more active traders where they're making lots of bets and some

work out and some don't, and so protect their downside risk.

You know that two percent has been a real common number for more frequent traders, but five percent

is fine too.

You just still gillmor downside risk if you're more of a part time trader, whatever than that on there,

12 18 or 20 30 is perfectly fine, too.

So any of these work is just a matter of what you're comfortable with as well.

But I think that if you're frequently trading, you know, then you can, especially if you're getting

started out, it's better to have more stocks with less money in each as you're learning as well to

start small, try to invest in more stocks.

Take a look at the lessons and follow through on fractional shares, by the way.

So in case you're wondering, how do I buy three thousand dollars worth of stock of Amazon or somebody,

you can actually buy a small percentage of that.

So take a look around things around fractional shares that brokers are starting to offer more than ever,

and we have less than on that.

OK, so some final thoughts around that.

Yes, you still want to if you're holding 20 or 30 or two percent, whatever you're choosing.

You want to diversify by sector, an industry.

You know, that's the whole idea of getting that diversification right.

So if a sector would be like the big sectors like health care or energy or financials and then industry

or small sectors underneath that are, excuse me, small businesses or industries underneath that larger

sector.

So we have under health care, we have biotechnology, we have medical devices, we have pharmaceutical

and so on, right?

So like what energy might be the sector and oil and gas would be the industry as opposed to wind or

something?

And then the good thing is to have a variety of both with between different types of sectors and industries,

right?

So you start looking at the industry level.

So you might have, let's say, some biotech companies and electronic vehicle company, a larger technology

overall sector type thing banks, which is a which is an industry of the financial sector.

I mean, you have this kind of this mixture going on.

And by doing that, you have a variety of types of investments.

It helps kind of, you know, give you that diversification is the big idea around that.

If you have 12 stocks and they're all in technology, you're not.

You're diversified at the stock level, but you're not as diversified at the sector and industry level.

So something to consider.

Also, you can use ETFs or mutual funds for instant diversification, you know, and maybe you want

that to be your core holding and then you add individual stocks around that.

That's a common strategy, one that I've used myself where I might have the S&P.

Five hundred and five, the largest U.S. stocks be my core holding.

And then I buy individual stocks that I think are going to do well around that.

But I might buy and hold that S&P five hundred just let that be at a low cost ETF, for example, or

mutual fund.

But then I'm going to buy individual stocks, you know, so I've got that little bit of vacation and

then I have my individual.

Stocks around that.

Even with that, the S&P 500 is only the largest stock, so I'm missing out a mid-cap or small cap.

So maybe in my individual stocks, I might want to target more small cap or mid-cap as an example or

the S&P 500 is very technology heavy.

So maybe my individual stocks might want to look more at health care or banking or some other industries.

Do you can do it any way you want?

It's just that you can use that ETF or mutual fund to help give you diversification as you're building

out your individual stock portfolio.

And that's the key thing in the end is to do whatever is comfortable for you.

Right.

So that's the key thing.

Whatever you're comfortable with and whatever you feel comfortable holding as far as the number of stocks

and how you want to trade, you know, in the end, all it's about you and, you know, do what is comfortable

for you.

But there are some ideas around how many stocks should I own?