Portfolio without funds
Posted: May 17th, 2020, 5:20 pm
Is having 13 indiividual stocks in my portfolio being too diverse.
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InvestUK98 wrote:Is having 13 indiividual stocks in my portfolio being too diverse.
InvestUK98 wrote:Is having 13 indiividual stocks in my portfolio being too diverse.
InvestUK98 wrote:Is having 13 indiividual stocks in my portfolio being too diverse.
InvestUK98 wrote:
Is having 13 individual stocks in my portfolio being too diverse?
Itsallaguess wrote:
I've always found that there's two levels of 'diversity' when it comes to my own investments, and understanding the difference has been a great long-term benefit to me personally as my portfolio has grown over the years.
I find that for me, there's what we might describe as 'technical diversity', where some 'external agent' could probably 'show' or ''prove' that technical diversity might be largely 'achieved' by a certain number of holdings.
Many investment studies have shown that once we get beyond 10 or 15 diverse holdings, the bulk of 'diversification-risk' has largely been removed, and with additional holdings beyond that number giving little additional benefit to 'diversification risk-reduction' -
Image source - https://tinyurl.com/ybejn2rx
But on top of that, for me there's then what I might describe as 'personal comfort diversity', where a relatively low '10 or 15' holdings simply never 'felt right' for me as an individual investor, and I found that I was much more 'personally comfortable' holding around 30 or 40 investments, and even more 'personally comfortable' again once some of those holdings were actually 'collective investments' themselves, in the form of Investment Trusts or Funds.
If someone could look at that situation and perhaps wish to tell me that I'm probably 'diversifying for the sake of it' at that level, and could perhaps even 'prove' at a 'technical level' that I actually 'stopped benefiting' from additional diversity some time ago, then I wouldn't be surprised at all by that, and would quite happily accept that fact in all honesty - and I would still be quite content to continue holding an investment portfolio with around 30 or 40 investments in it... In fact, I've just checked and there are currently around the 40 number in my portfolio at the moment..
So for me, it's more about at least understanding the technical side of the situation, and perhaps accepting that going beyond 15 diverse individual holdings is probably adding very little 'technical benefit', but then it's also very important for me, to find my own 'personal comfort' level as well with these types of things, and working in a way that might tick the first box, but also make sure to tick the more personal boxes too, where there's relatively little technical detriment in doing so...
Cheers,
Itsallaguess
Bubblesofearth wrote:Itsallaguess wrote:
I've always found that there's two levels of 'diversity' when it comes to my own investments, and understanding the difference has been a great long-term benefit to me personally as my portfolio has grown over the years.
I find that for me, there's what we might describe as 'technical diversity', where some 'external agent' could probably 'show' or ''prove' that technical diversity might be largely 'achieved' by a certain number of holdings.
Many investment studies have shown that once we get beyond 10 or 15 diverse holdings, the bulk of 'diversification-risk' has largely been removed, and with additional holdings beyond that number giving little additional benefit to 'diversification risk-reduction' -
Image source - https://tinyurl.com/ybejn2rx
But on top of that, for me there's then what I might describe as 'personal comfort diversity', where a relatively low '10 or 15' holdings simply never 'felt right' for me as an individual investor, and I found that I was much more 'personally comfortable' holding around 30 or 40 investments, and even more 'personally comfortable' again once some of those holdings were actually 'collective investments' themselves, in the form of Investment Trusts or Funds.
If someone could look at that situation and perhaps wish to tell me that I'm probably 'diversifying for the sake of it' at that level, and could perhaps even 'prove' at a 'technical level' that I actually 'stopped benefiting' from additional diversity some time ago, then I wouldn't be surprised at all by that, and would quite happily accept that fact in all honesty - and I would still be quite content to continue holding an investment portfolio with around 30 or 40 investments in it... In fact, I've just checked and there are currently around the 40 number in my portfolio at the moment..
So for me, it's more about at least understanding the technical side of the situation, and perhaps accepting that going beyond 15 diverse individual holdings is probably adding very little 'technical benefit', but then it's also very important for me, to find my own 'personal comfort' level as well with these types of things, and working in a way that might tick the first box, but also make sure to tick the more personal boxes too, where there's relatively little technical detriment in doing so...
Cheers,
Itsallaguess
I'm with you on a high level of diversification. Most studies of the relationship between diversification and risk look at volatility as the measure of risk. Indeed, volatility is the widely accepted best and most easily quantified measure of risk. However, I have also seen studies, and had personal experience, that show the bulk of stock market, and individual portfolio, gains come from a relatively small number of high performing companies. If, instead of looking solely to reduce portfolio volatility, you want to optimise your chances of capturing some of these high performers then a greater level of diversification is needed than to simply reduce portfolio volatility.
BoE
Itsallaguess wrote:But on top of that, for me there's then what I might describe as 'personal comfort diversity', where a relatively low '10 or 15' holdings simply never 'felt right' for me as an individual investor, and I found that I was much more 'personally comfortable' holding around 30 or 40 investments, and even more 'personally comfortable' again once some of those holdings were actually 'collective investments' themselves, in the form of Investment Trusts or Funds.
If someone could look at that situation and perhaps wish to tell me that I'm probably 'diversifying for the sake of it' at that level, and could perhaps even 'prove' at a 'technical level' that I actually 'stopped benefiting' from additional diversity some time ago, then I wouldn't be surprised at all by that, and would quite happily accept that fact in all honesty - and I would still be quite content to continue holding an investment portfolio with around 30 or 40 investments in it... In fact, I've just checked and there are currently around the 40 number in my portfolio at the moment..
Bubblesofearth wrote:However, I have also seen studies, and had personal experience, that show the bulk of stock market, and individual portfolio, gains come from a relatively small number of high performing companies. If, instead of looking solely to reduce portfolio volatility, you want to optimise your chances of capturing some of these high performers then a greater level of diversification is needed than to simply reduce portfolio volatility.
Bubblesofearth wrote:However, I have also seen studies, and had personal experience, that show the bulk of stock market, and individual portfolio, gains come from a relatively small number of high performing companies. If, instead of looking solely to reduce portfolio volatility, you want to optimise your chances of capturing some of these high performers then a greater level of diversification is needed than to simply reduce portfolio volatility.
At our request, Professor Jeremy Siegel of the Wharton School calculated a hypothetical return (before transaction costs) if someone bought the 50 largest S&P 500 stocks on Dec. 31, 1950 and held on. Average annual return: 12.6%, a fraction of a point better than the market (which Siegel defines as all listed stocks). He then created separate buy and hold portfolios for every year since until 1996. Result: the buy-and-hold approach beat the market three-quarters of the time and it never underperformed by more than 0.6% a year.
onthemove wrote:
And that's the key thing... sure I agree... the biggest gains come from a relatively small number of high performing companies.
But it's also true that the biggest losses come from a relatively small number of big catastrophes.
If you think diversification is chasing the winners, it's also chasing the losers!
Epic Change Yield
AZN 18.26% 2.44%
RB. 16.36% 2.46%
PHP 2.77% 3.75% (since 25 Mar 2020)
ADM -1.00% 5.20%
BATS -2.75% 6.74%
RIO -5.34% 8.33%
ULVR -5.41% 3.48%
UU. -6.49% 4.62%
GSK -6.51% 4.81%
NG. -6.75% 5.26%
SGRO -7.45% 2.52%
TSCO -10.93% 4.03%
VOD -11.41% 5.78%
DGE -11.45% 2.47%
BA. -12.59% 1.90%
BHP -12.76% 7.29%
SMDS -15.07% 3.42%
TATE -16.26% 4.66%
SSE -17.73% 6.64%
KGF -19.08% 1.88%
IMB -19.10% 9.01%
S32 -26.33% 3.76%
IMI -26.46% 1.71%
TW. -27.15% 2.78%
PSON -28.52% 4.33%
WMH -33.14% 0.00%
BP. -34.27% 10.50%
LGEN -37.64% 9.46%
CPG -39.18% 0.00%
BT.A -39.83% 0.00%
AV. -43.61% 4.01%
RDSB -44.59% 4.10%
BLND -45.52% 6.75%
MARS -48.11% 0.00%
LLOY -55.01% 0.00%
MKS -55.71% 0.00%
1nvest wrote:But its fractal! If you hold 100 stocks then one might rise 100% but if equally weighted adds just 1% of portfolio to the portfolio value. With ten stocks, one might rise 10% (and often more), and in being 10% weighted adds 1% to portfolio value. A example of how few can compare to many are the Dow 30 and S&P500. Both have broadly aligned (moderately) over the mid/longer term.
In times gone, when it was relatively expensive to buy/trade stocks, many investors opted to hold less than 10 stocks, even for very large/massive portfolios (such as the Rothschild's family funds). There are other instances of relatively few (30) comparing to the many over very long periods. LEXCX for instance that bought 30 stocks back in the 1930's and have held those since (more recently down to around 20, with the largest being a Railroad stock).
Jack (John) Boggle suggested a ultimate buy and hold portfolio of buying the 50 largest S&P500 stocks - buy and hold https://www.forbes.com/forbes/1999/0614 ... dae8896874At our request, Professor Jeremy Siegel of the Wharton School calculated a hypothetical return (before transaction costs) if someone bought the 50 largest S&P 500 stocks on Dec. 31, 1950 and held on. Average annual return: 12.6%, a fraction of a point better than the market (which Siegel defines as all listed stocks). He then created separate buy and hold portfolios for every year since until 1996. Result: the buy-and-hold approach beat the market three-quarters of the time and it never underperformed by more than 0.6% a year.
tjh290633 wrote:Maybe we should point out that there is considerable variability between the shares in a portfolio.
For the shares that I hold in my HYP, the figures for the change in price for the year to date are:Epic Change Yield
AZN 18.26% 2.44%
RB. 16.36% 2.46%
PHP 2.77% 3.75% (since 25 Mar 2020)
ADM -1.00% 5.20%
BATS -2.75% 6.74%
RIO -5.34% 8.33%
ULVR -5.41% 3.48%
UU. -6.49% 4.62%
GSK -6.51% 4.81%
NG. -6.75% 5.26%
SGRO -7.45% 2.52%
TSCO -10.93% 4.03%
VOD -11.41% 5.78%
DGE -11.45% 2.47%
BA. -12.59% 1.90%
BHP -12.76% 7.29%
SMDS -15.07% 3.42%
TATE -16.26% 4.66%
SSE -17.73% 6.64%
KGF -19.08% 1.88%
IMB -19.10% 9.01%
S32 -26.33% 3.76%
IMI -26.46% 1.71%
TW. -27.15% 2.78%
PSON -28.52% 4.33%
WMH -33.14% 0.00%
BP. -34.27% 10.50%
LGEN -37.64% 9.46%
CPG -39.18% 0.00%
BT.A -39.83% 0.00%
AV. -43.61% 4.01%
RDSB -44.59% 4.10%
BLND -45.52% 6.75%
MARS -48.11% 0.00%
LLOY -55.01% 0.00%
MKS -55.71% 0.00%
As you can see there is a lot of variation, and this is typical of any year.
TJH