I feel that having concentrated portfolios make it easy to track companies and one have develop much better understanding of a lesser number of companies.
The advise of concentrated portfolios needs to be pushed back – as there are realities and trade offs of the real world.
- Tradeoff between deploying new money – within in your portfolio whose valuations are good to hold but not to enter – versus adding a new stock which one likes. In a bull market this is very common situation. It may be better to add a new stock than sit on cash.
- What is the risk of ruin (losing a lot on high conviction bet) one can take – 3%, 5%, 10%, 15%. For each person this is different.
- Inability to differentiate between some bets. In that case why not make an index of 2-3 stocks than pick one of them.
- Should one count the stocks which are on the way out of one’s portfolio?
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