The number of stocks in a portfolio, should depend on the total investment amount.
So, how many stocks should be in a portfolio?
Let’s get straight to the point:
|Number of |
|1 Lakh||7 stocks||15000|
|5 Lakhs||10 stocks||50000|
|10 lakhs||12 stocks||80000|
|25 lakhs||15 stocks||1.6 Lakhs|
|50 lakhs||20 stocks||2.5 Lakhs|
|1 crore||25 stocks||4 Lakhs|
|2 crore||30 stocks||6.5 Lakhs|
|5 crore||35 stocks||14 Lakhs|
Some Portfolio Tips:
1. Investing less than 1-2% of your portfolio value in a single stock, makes no sense. However, if it’s just a tracking position i.e you have invested a small amount to track and study the company before you invest more – then you can start with a small quantity.
2. Never invest more than 10% of your portfolio value in a single stock. Anything can happen in the stock market, the best of companies have crashed. You also need to adjust your portfolio to make sure a single stock does not cross 10%. For example, the value of your portfolio is ₹ 1 lakh. You invest 10000 in Reliance Industries. After one year, Reliance has doubled in value to 20000, but the value of your entire portfolio is 1.2 lakhs. 10% of 1.2 lakhs is 12,000. The value of Reliance has to be brought down from 20,000 to 12,000. Sell a few shares and invest that amount into other stocks.
3. The Number of Stocks in a portfolio also depends on your comfort level. Some people cannot invest more than a few lakhs in a single stock, even if their portfolio is worth crores of rupees. For small investors, investing more than 2000-3000 in a single stock is scary. This is one of the reasons why they search for penny or low-valued stocks. This is a psychological barrier, which should change once you gain experience and knowledge of the stock market.
4. If you haven’t spent at least 4-5 years in the stock market AND if you haven’t experienced the entire market cycle – i.e the euphoria of the bull market and extreme fear in the bear market – then you should take help of an experienced professional for your investments.
5. If you are new to the stock market and have a large lump sum amount to investment – you should take help of a professional, or invest 90% of the amount through equity mutual fund. With the remaining 10% you can start slowly by investing in large-cap stocks which you like. This way, even if you make mistakes – you won’t lose a lot of money.
6. More importantly, you can only learn in the stock market when you invest your own money, make mistakes and learn from them. There is no other way. If your own money is not at stake, you won’t be serious enough about learning. Secondly, you won’t experience the emotional ups and downs that the stock market will put your through.
7. Your portfolio will never be perfect. There will always be some loss-making stocks and there will be stocks that are giving profits. But after spending a few years in the market, your mistakes will reduce. The quality of your portfolio will get better. You will eventually form your own investing strategy – after which you can handle your own money, without needing the help of a professional or mutual fund. This could take anywhere between 4-5 years – a little less for some, a little more for others. There is no shortcut.
8. Look for opportunities to invest in your existing portfolio. Put more effort into understanding the stocks you already own. Most new investors make the mistake of searching for new stocks all the time. Even those who have invested a small amount of 25000 and have 10-12 stocks already in the portfolio, will look for new stocks to invest in. High number of stocks does not make a good portfolio, in fact it could significantly affect returns, as you won’t be able to track all stocks.
9. Losses will always be a part of your investing journey. In fact, you can’t make money without losing money. Think about it, when you start a business. You have several expenses – electricity bills, salary, transportation and so many other things. Is that a loss? It’s an expense to run your business and make profits. Similarly, in the stock market you could lose money in some stocks. Even the most experienced of investors lose money or make wrong investments. The key is to learn from your mistakes and not repeat them.
10. Learn to sell your losers quickly and ride your winners. Learning this will take time, but building a quality portfolio is all about identifying winners and riding (holding) them. Rakesh Jhunjhunwala bought Titan nearly 17 years ago. He is still holding it. In between, he has sold several loss-making stocks.
11. Risk management is the key. Not only should you diversify your stock investments into several sectors – you should also keep emergency funds in savings account or fixed deposit. The market is volatile, if it crashes, you will not be able to sell. 100 minus your age is the right allocation towards equity. If you are 30 years old and have 10 lakhs – 70% should go into equity and rest into debt (FD. PPF etc). As you grow older, investment in the stock market should reduce.
If you have any questions, please post in the comments section below.