How Many Stocks Should You Own?

(12-11-2013, 03:20 PM)thefarside Wrote: Sorry for quoting but just a thought - suppose you have 10 stocks in your portfolio A1 - A10, say another one comes up and its better value than half the counters in your portfolio - do you i) add, ii) clear a few counters to overweight or iii) replace to equal weight of a weaker counter? I think it is this that should drive the allocation process.

In real life, it is very rare to have one "Messiah" stock coming by.(Oops.. cannot resist using the word "messiah")
So, in most cases, another one that comes up is more likely to be better but not much much better than what you have in your portfolio. Therefore, the logical choice is to add it to your portfolio using idle cash if idle cash is available. In the case that the idle cash is not available, then it is either a total or partial replacement of some counters.
As to how much to buy or trade with other counters, there are many deciding factors to it and certainly, it is not an easy process. It is only easy if there are already some identified counters that you already had in mind to get rid or do not mind to trade it for a better choice.

(12-11-2013, 04:02 PM)CityFarmer Wrote:

(12-11-2013, 01:25 PM)yeokiwi Wrote: I may own 1000 stocks but if another value stock just crawls by, I will still take the bait.
Therefore, there is no limit to how many stocks I will like to own.
And, I can kick any stock out anytime. Especially, a supervalue one pops up and I am running out of cash, I will clear some stocks from my portfolio to buy it.

A value stock is a value stock. What has it got to do with no. of stocks in your portfolio? In mathematical term, both events are almost orthogonal.

Theoretically it will work, but in practice, resources needed to filter the stock(s) to kick out from your portfolio. The work involved to filter 10 stocks, is vastly different from filtering 100 stocks, let alone filtering 1000 stocks.

Although there are more than 700 stocks in SGX, the worthy ones are likely to be less than 100 or even less after preliminary filtering.
For these 100 stocks, many of them do not generate events that required repeat analysis or daily/weekly monitoring.

Eg. if SPH is one of the 100, there is really nothing much an investor can spend his time on except waiting for quarterly reports. Once in a blue moon, SPH will spin out a special event( spin off a REIT) and the investor will do some calculations, make some decisions and after that, everything will go back into steady state again.

In my case, sometimes, I even missed the quarterly report of some of the counters I held. Not a big deal in most cases.

sgx shld follow hkex - just interim and year end reporting..to me is a waste of time and paper and compliance costs for both shareholders and company to report quarterly..

(12-11-2013, 11:30 PM)pianist Wrote: sgx shld follow hkex - just interim and year end reporting..to me is a waste of time and paper and compliance costs for both shareholders and company to report quarterly..

Ya lol!
Does it really makes a difference; Considering the the latest Blumont and associated companies? What can SGX really do? So is NYSE.

(12-11-2013, 11:30 PM)pianist Wrote: sgx shld follow hkex - just interim and year end reporting..to me is a waste of time and paper and compliance costs for both shareholders and company to report quarterly..

David Webb wants quarterly reporting for HK.
6 months too long. Meaning directors and substantial
shareholders has even more info advantage than minorities
Can buy or sell ahead. Or privatised. Not a good thing.

(12-11-2013, 10:19 PM)yeokiwi Wrote: I may own 1000 stocks but if another value stock just crawls by, I will still take the bait.
Therefore, there is no limit to how many stocks I will like to own.
And, I can kick any stock out anytime. Especially, a supervalue one pops up and I am running out of cash, I will clear some stocks from my portfolio to buy it.

A value stock is a value stock. What has it got to do with no. of stocks in your portfolio? In mathematical term, both events are almost orthogonal.

While I can appreciate the sentiments and joy on discovering a new value stock, surely we are constrained by capital (well, at least I am )? And I've always got the bad habit of comparing the new discovery against the rest of my harem (erm.... I mean portfolio).

In general, I keep up to 20 counters in the bag, but they are not equally weighted. E.g. last year, 5 counters form around 70-80% of my portfolio. At the moment, 2 counters form 80% of my portfolio.

(13-11-2013, 08:40 AM)HitandRun Wrote:

(12-11-2013, 10:19 PM)yeokiwi Wrote: I may own 1000 stocks but if another value stock just crawls by, I will still take the bait.
Therefore, there is no limit to how many stocks I will like to own.
And, I can kick any stock out anytime. Especially, a supervalue one pops up and I am running out of cash, I will clear some stocks from my portfolio to buy it.

A value stock is a value stock. What has it got to do with no. of stocks in your portfolio? In mathematical term, both events are almost orthogonal.

While I can appreciate the sentiments and joy on discovering a new value stock, surely we are constrained by capital (well, at least I am )? And I've always got the bad habit of comparing the new discovery against the rest of my harem (erm.... I mean portfolio).

In general, I keep up to 20 counters in the bag, but they are not equally weighted. E.g. last year, 5 counters form around 70-80% of my portfolio. At the moment, 2 counters form 80% of my portfolio.

Yes I agree. If money is not an issue, we can just continue buying without worrying about the number of stocks on hand. But since money is finite, I always have to recycle it and put my money where I see the a good chance of winning.

At the moment, I have 18 stocks in my portfolio. The top 5 holdings make up 50% of overall portfolio size. A few "rubbish" are mistakes made prior to GFC and am still holding till now waiting for opportunity to dump. I am targeting to trim my portfolio to 10 - 12 stocks in different industry sectors.

I will start by asking myself about how many offspring one would like to have?

If there is no other constraints, the parents would like to have as many as possible. But the biggest constraint is the energy and effort devoted to take care the young until they can survive themselves.

In many cases, the more intelligent the species, the less offspring it has. Additionally, more intelligent species generally require significantly longer time to develop: for instance compare a human which takes about 13 years to reach maturity to a dog which will take around a year. With that in mind it makes complete sense. If a human mother has 12 babies at once, think of the burden that would have on the mother having to raise 12 offspring in a 13 year period. In contrast, a dog is much more capable of raising the same 12 offspring in only a year, it doesn't need to devote nearly as much time.

Fish have thousands of offspring because the fish never even have to take care of the offspring. Once born, the fish need to fend for themselves.

Now, come back to value investing. With only a few years experience, I consider myself a less intelligent investor, and I diversify into around 40 stocks. For a small portfolio, that would not be possible without the "no minimum commission broker". As a learner, I think, the following are the benefits of a diversified statistical value-investing approach:

1 less volatility on portfolio value, hence less emotional on a particular stock.

2 more liquidity. Illiquid micro-chips tend to pop up for normal valuation screening. normal fund manager will avoid it due to liquidity reason. Individual investors having diversified illiquid micro-chips do not have much concern.

3 consistent (less volatility) return. Undervalued stocks by definition are unfavorable, at least in the short term, no one knows when the price will comes to the norm. By having a large number of stocks, one is more patient waiting for that to happen, and from time to time 1 or a few tickers in portfolio approaching its intrinsic value every month, its more likely to have a consistent return of 1-1.5% per month than having only a few value stocks.

4 Reducing the risk of individual fraud or mismanagement.

5 one learns faster (more in shorter time). One normally understands more of the company when he buys its stock. Having a large number of stocks, one is exposing to various of special situation of a company, he will force to learn from the relationship between a event and the price action of a stock. By tracking dozens of stocks, he also have a better feeling about the whole market.

Of course, to have the benefits, the learner needs to put in a lot of effort. The learner may have as many stocks as possible (as long as he feels comfortable). Research found that lower income, poorer, younger, and less well-educated investors invest a greater proportion in individual stocks, hold more highly concentrated portfolios, trade more and have worse performance.

Having that said, for the really intelligent, patient and well informed investors who can pick long term growth stocks, and can really understand the company and the management inside out, they may not care about "short term" volatility or illiquility or performance If they only care about "long term" absolute return, a concentrated portfolio suits them well.

I think not until you have been hit or wiped out by a specific company, will you agree that OPMI have not much choice but not to put all your eggs in one basket. i am not afraid of market risk but very very frighten of specific company risk. No doubt it may be Lehman brothers or BAC or SPH. Who can be sure? If i can be sure, i might as well put all my money in SPH or DBS or UOB or OCBC. it makes my life so much easier. No?

At one time i think BAC was a very good buy at $30 to $35 US. i wanted to buy more. My wife said no. In fact we took some profit at US $40 - $40+. Now it's only $14+ and is going nowhere. We are losing money for the balance units. Just imagine if i put almost my eggs in this basket.
And go and google about Stanley Ho's father.

(12-11-2013, 10:19 PM)yeokiwi Wrote:

(12-11-2013, 04:02 PM)CityFarmer Wrote:

(12-11-2013, 01:25 PM)yeokiwi Wrote: I may own 1000 stocks but if another value stock just crawls by, I will still take the bait.
Therefore, there is no limit to how many stocks I will like to own.
And, I can kick any stock out anytime. Especially, a supervalue one pops up and I am running out of cash, I will clear some stocks from my portfolio to buy it.

A value stock is a value stock. What has it got to do with no. of stocks in your portfolio? In mathematical term, both events are almost orthogonal.

Theoretically it will work, but in practice, resources needed to filter the stock(s) to kick out from your portfolio. The work involved to filter 10 stocks, is vastly different from filtering 100 stocks, let alone filtering 1000 stocks.

Although there are more than 700 stocks in SGX, the worthy ones are likely to be less than 100 or even less after preliminary filtering.
For these 100 stocks, many of them do not generate events that required repeat analysis or daily/weekly monitoring.

Eg. if SPH is one of the 100, there is really nothing much an investor can spend his time on except waiting for quarterly reports. Once in a blue moon, SPH will spin out a special event( spin off a REIT) and the investor will do some calculations, make some decisions and after that, everything will go back into steady state again.

In my case, sometimes, I even missed the quarterly report of some of the counters I held. Not a big deal in most cases.

Well, it depends on individual analysis method. A portfolio with 50-100 stocks for Walter Schloss alone, is manageable, but similar portfolio with Peter Lynch, will be definitely over-stretched.

Even for SPH, focuses on financial reports alone might not be sufficient, to fully understand its biz status, IMO.