Today I would like to give my opinion about the number of stocks that is needed to be well diversified in order to achieve a good long term total return and control the variance of your capital.
Let us take a few examples of well known portfolios.
- Vanguard Etf VIG : the top 10 holdings are
As you can see those major holdings are taking around 1/3 of the total portfolio.
the next 20 names is adding another 35 % of the portfolio, so the first 30 names are really doing the heavy lifting. This Etf has 182 names but the remaining 150 holdings are in % very small and I really do not see how having that many holdings would make a big difference in terms of capital preservation and long term total return.
2) Let us take a look at Warren buffett holdings
His top 10 holdings are at 74.72 % of the total portfolio, now I am not at ease myself with that much concentration, but when you look at this investor track record in wealth creation we have to admit he knows what he is doing and he has proven so in a long period of time.
3) This one is from a friend I know who is also a very successful retired multimillionaire, who build over 30 years a very stable portfolio.
So to summarize 30 stocks is enough if you would like to build a successful well balance portfolio that will create wealth in the long run.