InvestorQ : How many stocks should I own or track as part of my universe?
Anusha Savla made post

How many stocks should I own or track as part of my universe?

ishika Banerjee answered.
3 years ago

Peter Lynch once said that the number of stocks you own and its characteristics, you must able to illustrate with a piece of crayon. What he meant was that any portfolio that will be impacted by a cross matrix of variables is not a great idea. When you expand your universe of stocks beyond a level, you neither derive the benefits of reduced risk nor are you able to effectively keep a tab on the performance of all your holdings. A restricted and well thought out universe, always makes more sense.

This is a universal rule and applies to all forms of asset classes and market participations, whether you are trader, a long term investor or even a mutual fund investor. The perils of diversifications are apparent even in companies. Companies that tried to make everything from pins to aeroplanes have paid a huge price in terms of profitability and valuation. The same logic applies to your stock portfolio too. In trying to be something for everybody, you end up being nothing for anybody. You must decide on the number of stocks accordingly.