Ranvir’s Portfolio

How many stocks should be there in a portfolio?

Lets, look at some data first before coming to any conclusion.

One of the most famous fund managers, Peter Lynch held more than 300 stocks for most part of his career, across cycles for 13 long years when US economy was not really doing so well consistently (1978-1991 period even had 02 recessions). Still, his return was one of the best that we have ever seen in such a long time frame.

Even Warren Buffet had bought more than 300 stocks in his life. To reach to 01 coca cola he had to buy shares of 50 different companies, later to realise that the others were not worth holding. Everyone knows what titan did to Rakesh Jhunjhunwala, but how many no. of stocks he already owned the day he bought Titan? And how much allocation he made to Titan in terms of % of his total networth at that time? No matter how good an investor you are, finding a multibaggar like Titan also involves a factor of luck, because investing is not a precise science, there are unlimited variables which come into picture that you can never be sure about any particular analysis. That is the precise reason we dont put all our money in our single best investing idea, rather we all own a portfolio of multiple companies.

On the other hand there are many highly successful investors i know who have very concentrated portfolios and they too have build phenomenal wealth (the number is as less as 2-3 stocks for some of them to 7-8 for others). There are many such type investors on valuepickr as well whom we all can follow and learn from. Few examples are @Anant, @hitesh2710, @phreakv6

Ranvir dehal is someone who is on the other side of the curve wherein he practices extreme diversification and yet quite successful. Forget last 4 years, if you see his returns over a longer time frame than his returns are also phenomenal. I think all of us at Valuepuckr are lucky to learn from so different, yet so successful investors from both sides of the curve when it comes to constructing portfolios. I think rather than advicing these investors as to how many stocks they should have in thier portfolios, as per our own liking, inclination or biases, we should simply try to learn and understand the pros and cons of different strategies and then follow tje process which suits with our investment temperament.

I am somebody who has been lucky to have been personally mentored by Ranveer Dehal for more than a decade now, and today i am also his analysis partner. Ranvir is a full time investor now, after he took voluntary retirement from a government job. And now he dedicates, all his effort in knowing new new business ideas.

Having said that it’s important to understand which phase of learning curve an investor is in currently. The ultimate aim is to find that 1 Titan, or those 2-3 life changing multi baggars. But currently we are in that grind phase where we are ready to put in all our efforts. Currently we read about lot of businesses and we simply buy it if we like it. Our selling framework is very simple, we only sell when data starts indicating towards deterioration in fundamentals or the valuations have become so high that they have started factoring in everything that can happen in next 4-5 years including all the optionalities. My understanding is that what will remain in the portfolio 10-20 years down the line will have a Titan type outcome. Rest all will keep weeding out for new ideas. The portfolio may still have 40 names but few positions will become large enough and rest others will become insignificant to influence the overall outcome, hence they wont matter. Though i believe the no. of stocks will keep reducing as we keep moving forward in the learning curve.

I also carry out one more exercise to determine how many stocks i should have in my portfolio. After end of every financial year i arrange all my stocks in decreasing order of allocation (largest position at no.1 in the list) and then write down the returns i have got in all the stocks i own in front of them. Then i analyse which stock gave me how much return. For eg if my top 3 return stocks are at no. 21st, 26th and 38th stock, then i am not yet ready for a concentrated 10 stock portfolio. it means even the 38th stock has added value to my portfolio despite having a low allocation. If i wud have owned only 20 stocks then i wud have missed all 3 top performers of my portfolio. The day i start getting best returns in approximately top 10 positions, i will reach a level where i am comfortable having a portfolio of only 10 stocks. The day i reach a level where consistently my highest returns have been in top 3 positions, i will be comfortable making a concentrated portfolio of only 3 stocks.

Conclusion: No rule fits all. Having a bias or inclination regarding having no. of stocks in a portfolio without undeterstanding an investor’s complete thought process is a fallacy.
Regards.

Disclosure: I am a novice and writing it here for the purpose of my own clarity rather than trying to teach anyone.