Lessons from the Pros

India Markets

How Much is Too Much?

The Education Counselors at Online Trading Academy are an amazing resource that is largely underused. As a trader or investor, they are your first contact with our academy and are able to guide you through your financial education path. As an instructor, I rely on them to answer many student questions since I cannot always respond directly.

While I was teaching in Mumbai, one of the counselors approached me to review a student’s investment portfolio.  The counselor showed me a printout of the stocks that the student held in their portfolio.  The paper needed to print out the list most likely destroyed a small forest!  The student held way over 200 individual stocks.  Some were large positions while others were only a few shares.

Having a large number of positions is actually detrimental to your investment portfolio.  Unless you are a full time money manager, it is nearly impossible to track and manage that many stocks.  I happened to be watching a financial news channel today and a professional trader for a fund who was a guest mentioned that the preferred portfolio size for an individual should be no larger than 30 stocks.

This may be too much for the individual trader/investor.  I searched for the best performing Indian mutual fund over the past 12 months.  Viewing their portfolio, I found that they are holding 10 stocks.  This was the same for many of the funds.  Most of the fund was concentrated in a small number of stocks.  I am not recommending this mutual fund as an investment, this is just as an example.

When you plan to invest, you should look at portfolio diversification.  To play a sector, do your homework and buy one or two stocks that are best positioned to profit in the market environment.  Make sure that you are invested in several sectors to spread your risk but not in so many stocks that you cannot focus on managing your portfolio.  For more information on how to do this, come meet with an Education Counselor at Online Trading Academy today.

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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