There have been a lot of discussions among our users on how many stocks one should own in his/her portfolio. This is the review of the number of stocks in the portfolios of our Gurus.
We all know that Warren Buffett likes concentrated portfolios. He bets on his best ideas. Currently there are 40 stocks in the equity portfolio of Berkshire Hathaway. Back in year 2000, there were only 19 stocks in the portfolio.
The argument between concentration and diversification is that with a diversified portfolio, the chance of outperforming the market is much smaller, although Peter Lynch has proved otherwise.
Bruce Berkowitz has achieved outstanding long term track record with a concentrated portfolio. In his interview with Barron’s, he said: “If you can buy more of your best idea, why put [the money] into your 10th-best idea or your 20th-best idea? If we're confident in what we do, then that's the way we should do it. The only reason not to is a fear of being wrong. The more positions you have, the more average you are.”
The table below shows the number of stocks our Gurus own in their portfolios. The numbers there do not include the option positions they might have. For mutual fund managers like Bill Miller and bill Nygren, the numbers are their funds with smaller number of stocks.
Among all Gurus, Joel Greenblatt has the most concentrated portfolio. He owns only two stocks. In his book
You Can Be a Stock Market Genius he argues that if an investor wants win big, he needs to bet big. Other concentrated investors include Eddie Lampert, Bill Ackman etc.
Wise man Charlie Munger said: "Our investment style has been given a name - focus investing - which implies ten holdings, not one hundred or four hundred. The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obvious idea. But 98% of the investment world does not think this way. It's been good for us." Interestingly, this has been in Mohnish Pabrai’s email signatures.
Pabrai himself runs a portfolio with about 10 stocks, although he did make mistakes on some of the holdings. In his presentation titled “Inner Workings of a Concentrated Value Portfolio”, he argues that if you invest $1000 in 10 positions ($100 each). One stock lost 90% of value, another lost 50%, two stayed flat, five were up 90-100% and one were up 200%. The aggregate value of the portfolio is $1500. If this took three years to play out, the annualized return would be 14.5%. At two years, it’s 22.5% and if it all played out in a year, it would be up 50%. For Mohnish Pabrai, most of the bets have historically played out within 1½ to 2 years. That is why he has achieved more than 20% a year.
Gurus like George Soros, Jean-Marie Eveillard and David Dreman owns more than 300 stocks in their portfolios, and they all have achieved great long term performances.
For investors with small amount of funds and limited time, it is unrealistic to cover large number of stocks. For concentrated portfolios, investors need to have much higher level of confidences. How many stocks do you want to own?
We all know that Warren Buffett likes concentrated portfolios. He bets on his best ideas. Currently there are 40 stocks in the equity portfolio of Berkshire Hathaway. Back in year 2000, there were only 19 stocks in the portfolio.
The argument between concentration and diversification is that with a diversified portfolio, the chance of outperforming the market is much smaller, although Peter Lynch has proved otherwise.
Bruce Berkowitz has achieved outstanding long term track record with a concentrated portfolio. In his interview with Barron’s, he said: “If you can buy more of your best idea, why put [the money] into your 10th-best idea or your 20th-best idea? If we're confident in what we do, then that's the way we should do it. The only reason not to is a fear of being wrong. The more positions you have, the more average you are.”
The table below shows the number of stocks our Gurus own in their portfolios. The numbers there do not include the option positions they might have. For mutual fund managers like Bill Miller and bill Nygren, the numbers are their funds with smaller number of stocks.
Among all Gurus, Joel Greenblatt has the most concentrated portfolio. He owns only two stocks. In his book
You Can Be a Stock Market Genius he argues that if an investor wants win big, he needs to bet big. Other concentrated investors include Eddie Lampert, Bill Ackman etc.
Wise man Charlie Munger said: "Our investment style has been given a name - focus investing - which implies ten holdings, not one hundred or four hundred. The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obvious idea. But 98% of the investment world does not think this way. It's been good for us." Interestingly, this has been in Mohnish Pabrai’s email signatures.
Pabrai himself runs a portfolio with about 10 stocks, although he did make mistakes on some of the holdings. In his presentation titled “Inner Workings of a Concentrated Value Portfolio”, he argues that if you invest $1000 in 10 positions ($100 each). One stock lost 90% of value, another lost 50%, two stayed flat, five were up 90-100% and one were up 200%. The aggregate value of the portfolio is $1500. If this took three years to play out, the annualized return would be 14.5%. At two years, it’s 22.5% and if it all played out in a year, it would be up 50%. For Mohnish Pabrai, most of the bets have historically played out within 1½ to 2 years. That is why he has achieved more than 20% a year.
Gurus like George Soros, Jean-Marie Eveillard and David Dreman owns more than 300 stocks in their portfolios, and they all have achieved great long term performances.
For investors with small amount of funds and limited time, it is unrealistic to cover large number of stocks. For concentrated portfolios, investors need to have much higher level of confidences. How many stocks do you want to own?
