Q: 5i core principles
Can you clarify what you mean with this statement?
Avoid Concentrated Risks
"Don’t make a portfolio reliant on a single stock."
This is staight forward. But how many do you recommend?
"no matter how well you know a company or how confident you are in it, it can still go down."
How do you mitigate risk? It would seem that having a method of getting out of non or under performing stocks would be prudent.
"Having too many eggs in one basket can cause a lot of problems that are hard to bounce back from."
Are you suggesting having many baskets or having one basket with a few eggs that you carefully monitor?
I will post this under Avoid Concentrated Risks in the forums section if anyone wants to comment.
Can you clarify what you mean with this statement?
Avoid Concentrated Risks
"Don’t make a portfolio reliant on a single stock."
This is staight forward. But how many do you recommend?
"no matter how well you know a company or how confident you are in it, it can still go down."
How do you mitigate risk? It would seem that having a method of getting out of non or under performing stocks would be prudent.
"Having too many eggs in one basket can cause a lot of problems that are hard to bounce back from."
Are you suggesting having many baskets or having one basket with a few eggs that you carefully monitor?
I will post this under Avoid Concentrated Risks in the forums section if anyone wants to comment.
5i Research Answer:
On how many stocks to own, it is a personal decision to some degree. The benefits of diversification start diminishing at about 20 to 25 stocks so that would be our starting point. Of course, holding 'more' names doesn't really hurt things, will jst make the portfolio more 'market-like', which is ok.
On mitigating risks in this case, keeping those position sizes in check and rebalancing can be an easy and automatic way to manage concentration risks.
The too many eggs in one basket essentially means 'don't put all of your eggs in one basket' i.e. don't make your portfolio a bet on a single stock, theme, or sector. Essentially, ensure a portfolio is diversified across holdings, sectors, geographies, and asset classes.