Stock investing is a game everyone wants to play. The more time you spend on seeing where a ticker is going, the more Adrenalin rush you get. But have you analysed how much or how many shares to buy?
But how many stocks should you own ? How many stocks can you follow at a time ? How many of them would you essentially pick, track and hope to make a profit on ?
Is, “the more, the merrier” a good strategy for an ordinary investor ?
Example
Let’s see an example.
Suppose you have Rs 10,000/- with you to invest. You decide to pick up 5 shares and you put in Rs 2,000/- in each of them. (Ok, I get it, but for a moment let’s leave aside brokerage). Suppose one of these 5 doubled in investment while the others stayed where they were. Your portfolio would grow to Rs 12,000/. This is a return of 20%.
What this leads to is simple : One can never make stash by spreading money thinly over a large number of stocks. Diversification is not achieved by holding a large quantity but a less quantity of good quality stocks. How many stocks you own is important for your portfolio.
How many shares to buy?
So how many stocks are good enough ? I would say this is also related to the amount of money to be invested. With an amount of say Rs 2,00,000/-, I would recommend, around 5 stocks with Rs 40,000/- in each.
The art of making money from stocks is possible if you invest time in going through the financials of the company, reading through the annual reports and past performances of the company. The more stocks you own, the more time you spend in reviewing them and with a large basket, that is not sustainable at all.
One is better off with a small quantity but good quality of stocks.
Also remember that, you should curtail your investment into a particular share at 5-10% of your total investment. Investing a large portion in one single stock could give a kicker of returns if the value of that stock doubles, however, if it were to tank, a significant portion of your investment could be eroded.
To sum up, keep the following in mind when you are confused about how many stocks you should own :
- Before you invest in stocks, make sure you have the ability of picking the right ones.
- Don’t go shopping shares in the guise of diversification. A max of 15 or 20 in your portfolio will suffice.
- A single stock should potentially hold around 5-10% of your portfolio value.
- Ask yourself how many stocks you have in your portfolio. Clear out the dud ones.
Hope you liked the this small discussion on How many shares to buy? Hope you found the right answer. Share your views below in the comments section.
Dear all,
my self Naren
and i want to invest rs. 20 Lakhs in Indian equity market
pls provide stock detail
if you lke forex is much better tan equity stock investment give forex website
i hope you will understood
pls do needful
Naren
currently i have
bpcl-250
hpcl-200
infosys-50
nmde-1000
hul-2500
reliance-500
@naren, Naren – No one should advise you to invest in forex without understanding why you need to do that in the first place. There are some products all investors can live without and I consider forex as one of them. My honest recommendations to all my clients is that they can make easy money by investing in the simplest of financial products. Forex (and even F&O) can simply be avoided.
Coming to stocks now. Here, no one can advise you on what more investments to make unless until (1) they know your risk profile (2) they know how much you are already invested in the stock market through stocks and MFs and (c) for how much you bought these stocks you have quoted above (d) what and when you want these 20 lakhs for in the future etc etc.
If you are looking for plain simple stocks to pour in your money in, then you can get a lot of recommendations from many brokerage houses.
You are committing a huge sum of money in the stock market at a time when it is very high (20,000). You might lose money if you are not careful.
If you need further guidance, happy to talk on phone.
Recommendations from many brokerage houses,,,,but are they all that good and which ‘b’ houses cud you specify..Any way what is your vision of long term and when shud I be selling my shares?
Thnxs..
@CCGemini, Long term the market will return an easy 15% CAGR. India is a growing economy and that will happen easily. I am not sure which b houses are good, I dont follow them. And I dont think they really care about growing our money. They care about their commissions.
How many sector stocks should you have in a portfolio and the number of shares in a particular sector?
@CCGemini, Good question. It is not the number but probably the % of money in that sector stock that matters. So if you have one sector stock among a total of 10 stocks that you hold and that single sector stock constitutes 90% of your holdings, thats bad. I don;t know of any thumb rule that says what % of your holdings should be in sector stocks but maybe 10% is OK.
@Radehy,
I would agree with you, 15-20 stocks in a portfolio and diversified in different sectors. I had over 150 stocks in my portfolio in 2009, worked hard to bring that to 100 and now the next target is 50.