Some investors take pride having 60+ stocks in their portfolio. If you are one of them then follow associated problems to hold such large number of stocks-
- Very difficult to track properly :- Whether you are following any expert’s advice or not,it is very essential to track all of your portfolio stocks at regular interval, at least once in a week. Tracking does not mean just to check stock price. You should follow (at least) the quarterly result,all company related news, competitors status and management interview.You must have to devote 30 minutes per week on an individual stock. Now if you have 60 stocks in your portfolio,it requires 1800 minutes or 30 hours per week. So, around 4 and half hours per day. Now for a working individual,it is not possible to devote 4 and half hours daily after completing his full-time job. This is why I simply hate 30+ stocks in any stock portfolio.
- Negatively affect your overall return :- Suppose you have 60+ stocks in your portfolio.Out of them if 4-5 stocks generate 100%+ annualized return then also your overall return may not look bright. Negative/Flat return from other poor quality stocks may minimize the gain. Always remember,the number of high quality stocks are always much lesser than the poor qualities stock. Out of 7,000 listed companies in India less than 0.5% stocks generate 100%+ annualized return(multibagger) ,5%-10% stocks generate 20%+ annualized return,another 10%-15% generate 10%+ return, the rest 70-75% stocks either remain flat or generate negative return. Now,think about it how difficult is to pick multibagger stocks and how easy to select poor quality stocks(deliver negative return). So,if you have 60+ stocks in your portfolio then there is a very high probability that 50% of those companies have poor fundamentals.(Generate negative/flat return).
World’s most successful investor Mr. Warren Buffet (second richest person in the world) always prefered to keep 10-15 stocks in his portfolio. In spite of having 40-42 stocks, Mr. Rakesh Jhunjhunwala (Indian billionaire investor) restricted 90% of his holdings into 10-12 stocks. So, why should you construct stock portfolio with huge number of stocks? Why are you looking for new names frequently?