Portfolio Diversification by cost or stock

[Berlok]

Hey guys. New to this but was doing some homework on portfolio diversification. 

There are some theories that you should have a pretty even split between your stocks but I am confused on what is the better way to diversify.

Eg. 10k sgd per counter or 10k shares per counter.

[CCUV]

Both, for eg if I buy 10k on one stock,buy another 9 on $500 which doesn't provide much diversification.

[BlueKelah]

Hey guys. New to this but was doing some homework on portfolio diversification. 

There are some theories that you should have a pretty even split between your stocks but I am confused on what is the better way to diversify.

Eg. 10k sgd per counter or 10k shares per counter.

10k SGD per counter is the way to go. 

However u will have to decide how many counter to pickup. Having too many and you would do just as well to buy the index (>20 stock is probably too many). having too few and you wont have diversified enough(like having 5 stocks). 

Buying several counters in the same sector may also hamper your diversification efforts.

[greengiraffe]

For beginners, diversification is a good learning process.

However, over time when you are comfortable with yr strategy, one should start to evolve into a concentration strategy.

Concentration enables focus of time and effort. The main rationale behind a concentration strategy is to sharpen the focus on businessmen that will deliver and work hard for our limited capital and time.

Real businesses and businessmen are hard to come by and based on my personal experience, there are only 30% of such companies in the listed universe.

Given that valuation and mkt timing may be other dynamic considerations, frankly one can at best screened down to perhaps 50% of the 30% investible universe, ie 15% of the listed universe.

So one should seriously ask how many investible stocks can one have in one's portfolio...

Caveat: Got to work hard over time to be able to pursue a concentration strategy.

[thor666]

I don't think there is a diversification policy set in stone.. But a useful guage might be to model your portfolio with some reference to vanguard world index. My personal referred diversification rule is to split by industry, with no one industry dominating more than 20% of my portfolio. YMMV, both GG and Cityfarmer have had good runs with their concentrated portfolios based on their approach.

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[zz...]

can read up a bit on Kelly Criterion for portfolio diversification, but it's not easy to understand and has its own limitations too: http://www.investopedia.com/articles/tra...091504.asp

It'll take time and experience to develop a system that works for individuals.

[Nick]

I tend to hold on to 3-4 core positions (usually 15 - 20% of portfolio each). A small number of 'scouts' which are each 3-5% of the portfolio. These are ideas which I am exploring but I don't have the conviction to turn them into core positions yet. Personally I don't really see the need to own more than 10 core stocks as I find it difficult to find so many yummy stocks haha !

[Berlok]

Great replies guys. Yes I do agree that is hard to get some really good core stocks.

After 3 or 4 and it starts to get a bit forced to pick a few more "core" to diversify.

I currently intend to pick about 8-10 stocks. 4 cores that I would put 20% and 2 REIT and 2 Trusts with about 5% each.

Would you guys consider REIT or Trusts to be a core stock?

[Nick]

Great replies guys. Yes I do agree that is hard to get some really good core stocks.

After 3 or 4 and it starts to get a bit forced to pick a few more "core" to diversify.

I currently intend to pick about 8-10 stocks. 4 cores that I would put 20% and 2 REIT and 2 Trusts with about 5% each.

Would you guys consider REIT or Trusts to be a core stock?

If the REIT or Trust is severely undervalued, why not ?

[CityFarmer]

For beginners, diversification is a good learning process.

However, over time when you are comfortable with yr strategy, one should start to evolve into a concentration strategy.

Concentration enables focus of time and effort. The main rationale behind a concentration strategy is to sharpen the focus on businessmen that will deliver and work hard for our limited capital and time.

Real businesses and businessmen are hard to come by and based on my personal experience, there are only 30% of such companies in the listed universe.

Given that valuation and mkt timing may be other dynamic considerations, frankly one can at best screened down to perhaps 50% of the 30% investible universe, ie 15% of the listed universe.

So one should seriously ask how many investible stocks can one have in one's portfolio...

Caveat: Got to work hard over time to be able to pursue a concentration strategy.

I concur.  GG