So yesterday, I discussed how much one should invest in a single stock. Today, I’m going to talk about another query I get a lot from beginning investors: “how many stocks should I own?”
When you are first starting out, you may indeed wonder how many stocks you should own in total. The truth is, there is no hard and fast rule as to an ideal number of stocks to invest in.
I’ve heard some people say that owning too many stocks will minimize your chances of beating the market, because your portfolio will operate more like a mutual fund. I have also heard investors say you should own at least 15 and no more than 20 stocks at any given time.
My belief, though, is that you should own as many as you can buy. If that number is 15, 20 or 30, so be it.
The reality is that not all of your investments will be winners. If you own 15 stocks, for example…5 may not do well at all, 3 may be so-so, one maybe very good, and one may be a home run.
That one home run, however, is all you need. It is more than enough to make up for the underperformance you may experience with your other holdings.
For example, let’s say you have $1000 invested in 10 different companies for a total of $10,000.
Imagine a scenario where you lost 50% of your value in 9 out of the 10 stocks, which would value 90% of your portfolio at $4500.
However, let’s imagine that one of the companies you invested $1000 in was Netflix 15 years ago. That $1000 would be valued at $360,000 today.
This is what i mean when i say you only need one winner! You could have lost 90% of your investment and still done incredibly well.
Until next time…