In the past 15 months, I’ve gone from 10 stocks in my portfolio to 15. My personal preference is to keep my holdings to 10-12 in the portfolio, with the top 5 stocks making up at least 60% of my portfolio.
The objective behind this is to concentrate my capital on the highest-conviction ideas rather than watering down performance with a bunch of mediocre holdings. This is best summed up by 2 quotes from Warren Buffett:
“Diversification may preserve wealth, but concentration builds wealth”
“If you are a know-something investor, able to understand business economics and to find five to ten sensibly-priced companies that possess important long-term competitive advantages, conventional diversification makes no sense for you.
It is apt simply to hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favourite rather than simply adding that money to his top choices – the businesses he understands best and that present the least risk, along with the greatest profit potential.
In the words of the prophet Mae West: 'Too much of a good thing can be wonderful.’”
More than the total number of holdings, I’m more concerned that many are at small single-digit percentages, which make it difficult to move the needle for the portfolio.
In this article, I’ll be sharing my portfolio plans for the next few months, which stocks I’m looking to trim, cut entirely, and how I intend to allocate the excess cash.
In case you missed the most recent article (linked above), I discussed all 15 holdings in my portfolio, ranking them by conviction, quality, risk and valuation.