vendredi 19 février 2021

Number of stocks and concentration: A look at 10 superinvestors

In the past, I've written a lot about superinvestors transactions. But much less about superinvestors diversification. That's what I'm gonna do now. 

Diversification is very important. Concentration is important too. You have to find balance. 

A portfolio of less than 10 stocks seem pretty risky to me. Saying that every stock represents 10% of the portfolio, each stock may have a very significant impact on the performance of the porfolio. The impact may be great but it may also be bad. For me, it's too concentrated. For others, it's perfect to stay focus that way. My recommendation would be to chose that strategy only if you understand very well the stocks you own. 

On the other hand, I find ridiculous to own 50 stocks and more, whatever the size of your portfolio. Even if you manage 100 billion dollars, owning 50 stocks is a loss of time and energy. Usually, when you find a manager with so many stocks, you can see a lot of 0,5% and 0,1% positions. What's the use? My opinion is: If you have enough faith in a stock to buy it, then buy it for a significant portion of your portfolio. If you're not comfortable with it, then just don't buy it.

So, I've gathered informations about 10 superinvestors via Below, we can see how many stocks a specific investors owns in his portfolio. We can also see the level of concentration of the portfolio.  

Bill Ackman: 7 stocks. Top 3 represent about 50% of the portfolio. 

Pat Dorsey: 9 stocks. Top 3 represent about 50% of the portfolio. 

Bill and Melinda Gates Foundation: 21 stocks. Top 3 represent more than 60% of the portfolio. 

Chuck Akre: 28 stocks. Top 5 represent about 50% of the portfolio. 

Sequoia Fund: 29 stocks. Top 10 represents about 50% of the portfolio. 

Seth Klarman: About 40 stocks. Top 10 represents more than 60% of the portfolio. 

Warren Buffett: About 50 stocks. Top 3 represent more than 60% of the portfolio. 

Daniel Loeb: About 70 stocks. Top 10 represents about 50% of the portfolio. 

Lee Ainslie: More than 100 stocks. Top 10 positions represent about 50% of the portfolio. 

Thomas Gayner: More than 100 stocks. Top 10 represent more than 40% of the portfolio. 

We can see that almost all of these investors have more than 50% of their money in 10 stocks or less. That's a high concentration, in my opinion. 

Buffett is a strange case. While Apple represents almost 50% of his portfolio, he also owns a load of very small positions. Why being so concentrated on Apple and so diluted on so many very small positions? I don't understand. 

What's your ideal size of portfolio and your ideal level of concentration? If you haven't thought about that before, it's time to do it. Because it makes a big difference on your performance. 

7 commentaires:

  1. One of the things I believe most strongly about is concentration in managing an investment portfolio. The key point to keep in mind for me is 'know what you own'. That means going beyond looking at the numbers and delving into how the senior management of a company conduct themselves (operating the business, financing the business, communicating with their stockholders.)

    Anyway I own 15 stocks but my top 5 positions take up 64 percent of my portfolio. And those 5 companies faithfully raise their dividend consistently over time.

    I'm comfortable with this approach but concentration and diversification will be an individual preference for every investor as we all in different situations and stages in our life.

  2. 23 positions is my sweet spot for accounts 500k-5M

  3. When I didn't have much money I was 80% marijuana stocks. As my account grew I diversified like a pussy that is not very penetrable. I'm content with 20 solid companies, or more as long as I'm not significantly sacrificing growth.

  4. All I have is a tfsa .. I own 7 stocks . Equally weighted .

  5. I treat my 4 accounts separately:

    TFSA-US - 5 Stocks - equal weight
    TFSA-CDN - 7 Stocks - equal weight
    RSP-US - 30 Stocks, 8 starter positions, top 5 = 50%
    RSP-CDN - 28 Stocks, 5 starter positions, top 5 = 60%

    Over the years I have moved more and more money to the US, the TSX does not have the depth and quality wealth creation type companies that are present in the US marketplace.

  6. Any academic study I've read on this subject suggests that 15-25 is the ideal number of positions. We currently own 20 for clients. I'd rather have fewer. 96% of a stock specific risk is diversified away by the 20th position. Banks and mutual funds will tell you otherwise because they can't only own 20 positions but don't believe the propaganda.