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How many stocks in Portfolio?


timmerjames
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Looking for opinions on this situation: nonretirement account, will need the bulk of the money in 10-12 years so would probably sell entire portfolio some time before that to preserve capital. Stocks were mostly purchased recently except brk which was purchased at $120.  Should I have more stocks? Suggestions? Thanks.

 

Brk 30%

Ge  18%

Bp  14%

Mcd 14%

Bh  12%

Vz  12%

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Depends on your conviction and your ability to stomach volatility.

 

Being concentrated with the right picks leads to higher returns.

 

More concentrated: Potentially higher returns, higher volatility

 

Benefits of lower volatility from more picks declines as you get above 10, 20 picks.

 

diversification.jpg.5dbc239d23e3e187561dc8cd5d54d4d0.jpg

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It looks like GE, MCD, BP, and VZ are dividend picks. Are you doing a drip to avoid taxes, do you need the income?

 

I would diversify a little more. Add some small caps, perhaps PRFZ as a diversified ETF? BH and MCD are in a related industry and GE and BP are sensitive to the macro environment. KMI has the same dividend as BP and should be less volatile being pipelines, I would choose another recession resistant co in place of BH or MCD if you are going to stay as concentrated as you are. Some other industries: Defense - BAH, Healthcare - large insurance or big pharma, Retail - WMT, Kroger, TJX, maybe housing - Lowes or HD, Transportation - CHRW or EXPD. You have GE for manufacturing, DHR and TDG are good as well

 

Owner operators - MKL, TPRE or GLRE, FFH. 

 

I would be inclined to put 15% in a small cap etf like PRFZ, 25% in a large high quality EFT like VLUE, QUAL, VIG possibly MOAT. Then doll out the other 60% equally spread amongst companies that are at the top of their industry.

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Thanks for the graph peter. That is helpful. I think for me 10 might be the number. I have pretty high conviction for each of these picks but I think adding 4 more would help smooth volatility.

 

Thanks Ross. I am reinvesting the divvies; I might need some as income in 5 years. Maybe 1/4 is too much for mcd and bh. I have more conviction in bh so maybe I will cut back on mcd and add another dividend company in a different industry.

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I think you are fine, especially with your large cap bias. 6-8 is probably ideal. If BRK drops 50%, you temporarily lose 15K. I don't know your financial situation but that doesn't seem worth losing much sleep over. In other words, the extra effort in carefully monitoring 4 more stocks would outweigh the reduced volatility. You need to embrace the volatility.

 

I'd be more worried about your short time horizon than your portfolio concentration.

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I never understand these one size fits all responses.  There is no right answer and I don't care what some general answer about 8 being the perfect number or 6 or 3 or 15 says.  It's very personal to the investor.  It has to feel right.  You will know what the right number is.  Munger has 3 (if in fact he does which I am skeptical about) because he has 3 investments he feels strongly about.  Schloss had around 100 because that worked for him.  Not accounting for portfolio size, and despite Munger's inferences to the contrary, if you look at the results set out in the 1984 Graham and Doddsville article/speech Schloss had a better overall record over a longer time period. 

 

So do what feels right.  Know yourself and you can't go wrong.

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I never understand these one size fits all responses.  There is no right answer and I don't care what some general answer about 8 being the perfect number or 6 or 3 or 15 says.  It's very personal to the investor.  It has to feel right.  You will know what the right number is.  Munger has 3 (if in fact he does which I am skeptical about) because he has 3 investments he feels strongly about.  Schloss had around 100 because that worked for him.  Not accounting for portfolio size, and despite Munger's inferences to the contrary, if you look at the results set out in the 1984 Graham and Doddsville article/speech Schloss had a better overall record over a longer time period. 

 

So do what feels right.  Know yourself and you can't go wrong.

 

Schloss was a full-time professional investor. If the OP was just buying a basket of cheap stuff, that might be okay. But based on his portfolio, I am assuming he has put substantial effort into the selection each stock. My recommendation is based on the time/benefit tradeoff, especially for a relatively small portfolio.

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A guy like Schloss made his money from the market's inferior wisdom, buying hundreds of stocks under book.

 

A guy like Buffett made money from his superior wisdom, buying a few stocks where he felt he was right.

 

I used to think buying many stocks (say 30) is di-worsification until I read about schloss's results.

 

Like many previous responses it depends on what kind of investor you are, there are so many variables specific you each person's case. But one thing that hasn't been mentioned is, if you want to know your investments well and be a do-it-yourselfer, then you have to read the quarterlies, I find that I have a capacity to follow just 20 stocks. That is 80 reports a year at least! I may be able to follow more stocks if I am investing full time.

 

 

 

 

 

 

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Guest moneystockholder

Have as many as you want as long as you've done an appropriate analysis of all of the companies you currently have. This also means keeping up with all the information and news happening within the company itself, these things tend to change or impact investment theses, particularly if unexpected things happen. You can have a portfolio of 1 stock that will outperform all the major funds.

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"if you look at the results set out in the 1984 Graham and Doddsville article/speech Schloss had a better overall record over a longer time period."

 

Schloss had 21.3 compared to munger's 19.8 cagr but schloss had another 14 years to offset the 73-74 on his returns compared to munger.

Your statement is definitely correct but I thought further data helps explain how close they are and walter had more time to offset the 73-74.

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I never understand these one size fits all responses.  There is no right answer and I don't care what some general answer about 8 being the perfect number or 6 or 3 or 15 says.  It's very personal to the investor.  It has to feel right.  You will know what the right number is.  Munger has 3 (if in fact he does which I am skeptical about) because he has 3 investments he feels strongly about.  Schloss had around 100 because that worked for him.  Not accounting for portfolio size, and despite Munger's inferences to the contrary, if you look at the results set out in the 1984 Graham and Doddsville article/speech Schloss had a better overall record over a longer time period. 

 

So do what feels right.  Know yourself and you can't go wrong.

 

Schloss was a full-time professional investor. If the OP was just buying a basket of cheap stuff, that might be okay. But based on his portfolio, I am assuming he has put substantial effort into the selection each stock. My recommendation is based on the time/benefit tradeoff, especially for a relatively small portfolio.

What makes you think that OP has put a 'substantial effort into the selection each stock'? It is just a more or less random selection of large cap names... and OP's questions doesn't directly scream brilliance IMO.

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people either say buy an index if your not good at this, or if your good go ahead and pick stocks. The problem is a lot of people buying the index might panic sell when the market goes down. I think the best solution is, get decent investment advisor or buy real estate if you cannot invest.

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people either say buy an index if your not good at this, or if your good go ahead and pick stocks. The problem is a lot of people buying the index might panic sell when the market goes down. I think the best solution is, get decent investment advisor or buy real estate if you cannot invest.

 

Investing in real estate also takes work, and has its own set of risks.

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Hiekl - Dude, lighten up. As for your brilliant comment....I never claimed to be brilliant; just looking for views/insights to improve and learn. " More or less random"? Either it is or it isn't and since when did BH become a large cap?

 

Mephistopheles - if you are in the 15% tax bracket the tax is 0% on dividends.

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people either say buy an index if your not good at this, or if your good go ahead and pick stocks. The problem is a lot of people buying the index might panic sell when the market goes down. I think the best solution is, get decent investment advisor or buy real estate if you cannot invest.

 

Investing in real estate also takes work, and has its own set of risks.

it's fool proof. You just need a bunch of common sense.

 

Or you can find a bunch of very well performing hedgefunds and investors over the past 10 years, and just buy their 10 best picks. I would probably do tht with little time. And don't sell unless they sell.

 

op: http://greatinvestors.tv/video/howard-marks-on-the-distinction-between-risk-control-and-ris.html

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