50 Stocks Enough to Diversify Idiosyncratic Risk?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Park
Posts: 573
Joined: Sat Nov 06, 2010 4:56 pm

50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by Park » Sun Oct 21, 2018 3:39 pm

"Investors need to hold only a small portion of the market to achieve market-like levels of diversification. According to a group of scholars that includes investment guru Burton Malkiel, in years past "[a] conventional rule of thumb...[was] that a portfolio of 20 stocks [attained] a large fraction of the total benefits of diversification." In more recent years, research shows that to achieve the same reduction in nonmarket risk, investors required a portfolio of fifty securities. Regardless of the specific number needed to product a portfolio that embodies market-like risk, the total falls far short of the thousands of stocks in the U.S market"

That was written in 2005; perhaps there is new research that changes the conclusions.

That was written by an indexing advocate, David Swensen, in his book "Unconventional Success".

User avatar
nisiprius
Advisory Board
Posts: 37090
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by nisiprius » Sun Oct 21, 2018 4:06 pm

And now read The Fifteen-Stock Diversification Myth, by William J. Bernstein. I don't know who's right. But, as long as I own the Total Stock Market Index Fund, I don't need to know who's right.
To be blunt, if you think that you can do an adequate job of minimizing portfolio risk with 15 or 30 stocks, then you are imperiling your financial future and the future of those who depend on you. The reason is simple: There are critically important dimensions of portfolio risk beyond standard deviation. The most important is so-called Terminal Wealth Dispersion (TWD)....

The reason is simple: a grossly disproportionate fraction of the total return came from a very few "superstocks" like Dell Computer, which increased in value over 550 times. If you didn’t have one of the half-dozen or so of these in your portfolio, then you badly lagged the market....

If the O’Neal data are generalizable to stocks, and I believe that they are, then even 100 stocks are not nearly enough to eliminate this very important source of financial risk.

So, yes, Virginia, you can eliminate nonsytematic portfolio risk, as defined by Modern Portfolio Theory, with a relatively few stocks. It’s just that nonsystematic risk is only a small part of the puzzle. Fifteen stocks is not enough. Thirty is not enough. Even 200 is not enough. The only way to truly minimize the risks of stock ownership is by owning the whole market.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

columbia
Posts: 1123
Joined: Tue Aug 27, 2013 5:30 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by columbia » Sun Oct 21, 2018 4:33 pm

I would think that owning the 1000 largest companies on the globe would be the baseline for any investor with 30-50 years left in the market.

I’ll likely be dead by the the lower boundary stated above, but would still certainly use a fund like that....unless I’m missing something, it doesn’t seem to exist.

Ron Scott
Posts: 1090
Joined: Tue Apr 05, 2016 5:38 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by Ron Scott » Sun Oct 21, 2018 4:54 pm

nisiprius wrote:
Sun Oct 21, 2018 4:06 pm
I don't know who's right. But, as long as I own the Total Stock Market Index Fund, I don't need to know who's right.
This about nails it...

Given the TSM funds out there, there is no need to approximate the market's return for the purpose of diversification. Unless you're Rube Goldberg.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

User avatar
vineviz
Posts: 2333
Joined: Tue May 15, 2018 1:55 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by vineviz » Sun Oct 21, 2018 5:02 pm

I'm not sure WHY you'd want to hold a portfolio of individual stocks when you could, as others have said, cheaply own a fund tracking any number of broad market indexes.

However, if you DID want to do this I think the question should not be about how many stocks is enough to minimize idiosyncratic risk. In order to truly minimize it, you'd need to hold way more stocks than you could manage.

I like the theoretical approach proposed by Adeola Oyenubi in a working paper called "Diversification measures and the optimal number of Stocks in a portfolio: An information theoretic explanation". Basically, they look for a portfolio size that "simultaneously maximizes diversification and minimizes concentration".
By exploiting this relationship, we show that adding a stock to a portfolio has two effects. First, it can improve the level of diversification of the portfolio. Second, it can also increase its complexity. An optimal number of stocks is reached when a portfolio maximizes diversification while simultaneously minimizing complexity. Our result agrees with the notion that there is no unique number when it comes to the optimal number of stocks needed to achieve full diversification. This number depends on the correlation structure in the universe of stocks under consideration, and the trade-off between diversification and complexity. It is for this reason than one expects the optimum number of stocks needed to achieve full diversification to be different for different markets, such as developing versus developed markets. This is a direct consequence of the different correlation structures in these markets.
Using some reasonable assumptions, they find the optimal balance between diversification and complexity is probably in the neighborhood of 30-40 stocks.

Image
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Park
Posts: 573
Joined: Sat Nov 06, 2010 4:56 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by Park » Sun Oct 21, 2018 5:29 pm

The following though is from an article by Rick Ferri, an indexing advocate, in Forbes. He's quoting work done by Research Affiliates.

https://www.forbes.com/sites/rickferri/ ... 28f91630ae

"the company randomly selected 100 portfolios containing 30 stocks from a 1,000 stock universe. They repeated this processes every year, from 1964 to 2010, and tracked the results

"on average, 98 of the 100 portfolios beat the 1,000 stock capitalization weighted stock universe each year"

the average portfolio "outperformed the index by an average of 1.7 percent per year since 1964"

"From 1964 to 2011, the annualized return for the 1,000 stocks used by Research Affiliates was 9.7 percent. The 30 largest companies in the 1000 made up about 40 percent of the capitalization weight, but their return was only 8.6 percent annually. The other 970 stocks made up 60 percent by capitalization weight and their return was 10.5 percent annually. That’s a 0.8 percent per year premium return for smaller stocks over the 1,000 stock universe and a 1.9 percent premium return over the largest stocks. Any portfolio of 30 stocks randomly selected from the list of 1,000 stocks is bound to include mostly smaller companies."

"the 30 stocks in the portfolio were equally weighted. This technique reduced the average market cap relative to the cap weighted index and helped boost the return. In addition, equal weighting “tilted” the portfolio toward value stocks, which earned a higher return than growth stocks over the 1964 to 2011 period."

William Bernstein did something similar.

http://www.efficientfrontier.com/ef/900/15st.htm

From the 500 stocks of the S&P500 on 11/30/99, he created 98 random equally-weighted 15-stock portfolios for the 12/89-11/99 10-year holding period. 75% of the portfolios failed to beat the market.

From what I can see, those 15 stock portfolio were held for 10 years. There was no yearly rebalancing. That rebalancing is important, when it comes to getting the small premium and value premium.

bpp
Posts: 1983
Joined: Mon Feb 26, 2007 12:35 pm
Location: Japan

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by bpp » Sun Oct 21, 2018 5:58 pm

See the wiki for some discussion of this issue: https://www.bogleheads.org/wiki/Passive ... ual_stocks

User avatar
Alexa9
Posts: 1735
Joined: Tue Aug 30, 2016 9:41 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by Alexa9 » Sun Oct 21, 2018 6:36 pm

I agree that 50 large caps in a variety of sectors is good enough if you had to. However, I see no reason to do this unless you're very high net worth and expense ratios matter more. Transaction costs may be an issue for the average investor.
Anyways, Fidelity has zero expense ratio funds now. Looking forward to Vanguard and Schwab keeping up with that.

bpp
Posts: 1983
Joined: Mon Feb 26, 2007 12:35 pm
Location: Japan

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by bpp » Sun Oct 21, 2018 7:04 pm

Alexa9 wrote:
Sun Oct 21, 2018 6:36 pm
I agree that 50 large caps in a variety of sectors is good enough if you had to. However, I see no reason to do this unless you're very high net worth and expense ratios matter more.
The wiki page gives some reasons to do it. It's not just for high net worth individuals, and is not generally useful to beat expense ratios. The biggest driver is probably taxes.

User avatar
nedsaid
Posts: 10680
Joined: Fri Nov 23, 2012 12:33 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by nedsaid » Sun Oct 21, 2018 8:46 pm

Park wrote:
Sun Oct 21, 2018 3:39 pm
"Investors need to hold only a small portion of the market to achieve market-like levels of diversification. According to a group of scholars that includes investment guru Burton Malkiel, in years past "[a] conventional rule of thumb...[was] that a portfolio of 20 stocks [attained] a large fraction of the total benefits of diversification." In more recent years, research shows that to achieve the same reduction in nonmarket risk, investors required a portfolio of fifty securities. Regardless of the specific number needed to product a portfolio that embodies market-like risk, the total falls far short of the thousands of stocks in the U.S market"

That was written in 2005; perhaps there is new research that changes the conclusions.

That was written by an indexing advocate, David Swensen, in his book "Unconventional Success".
I have held individual stocks in a Brokerage IRA account for 30 years now. Going back 15 years, I have about matched the broad US Stock Market over that time. I have owned between 15-18 stocks in that account. I think 20 stocks diversified across industry groups will take out most of the single stock risk. There gets to be a point where adding more and more stocks to a portfolio has smaller and smaller incremental diversification benefits. 50 is obviously better than 20 but how much better? You also run a risk of tracking error compared to the indexes when you select individual stocks.

My recommendation would be to go with the broad stock indexes like a US Total Stock Market Index and a Total International Stock Index. That way you have thousands of stocks diversified all over the world and diversified across all industry groups. Since these indexes are market cap weighted, there will be a bias towards the largest and most successful companies. So you will get a bit of a Quality factor tilt.
A fool and his money are good for business.

User avatar
JoMoney
Posts: 6307
Joined: Tue Jul 23, 2013 5:31 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by JoMoney » Sun Oct 21, 2018 11:12 pm

The smaller the market cap of the stocks, more are needed. The Dow 30 has managed just fine with 30 large cap stocks.
If you owned 50 large caps, you probably have something close to half the market covered by market cap, and they would predominately be the larger, well established, lower risk companies - implying less risk needing to be diversified.
If you were picking micro-cap stocks, 50 may not be nearly enough.

But if your intention is to hold a well diversified portfolio, why bother stock picking when you can buy and hold a low-cost broad market index fund so cheaply?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Nate79
Posts: 3740
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by Nate79 » Sun Oct 21, 2018 11:29 pm

How do you pick the 20 or 50 stocks? I wonder if anyone has run the numbers of the return over 30 years of the worst performing 50 stocks of the S&P?

User avatar
JoMoney
Posts: 6307
Joined: Tue Jul 23, 2013 5:31 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by JoMoney » Sun Oct 21, 2018 11:42 pm

Nate79 wrote:
Sun Oct 21, 2018 11:29 pm
How do you pick the 20 or 50 stocks? I wonder if anyone has run the numbers of the return over 30 years of the worst performing 50 stocks of the S&P?
The results of "monkeys throwing darts" at a list of stocks implies that it probably doesn't matter much how you select them, provided they're sufficiently large.

A fun test of market efficiency, would be to see if you could consistently pick a diversified portfolio of losing stocks... ok, maybe that wouldn't be "fun" ;)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
whodidntante
Posts: 4332
Joined: Thu Jan 21, 2016 11:11 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by whodidntante » Mon Oct 22, 2018 12:00 am

It had better be. Float weighting results in concentration to the companies with the (wait for it) largest float. Apple is 4.3% of the S&P 500. I imagine a few Bogleheads own an S&P 500 index fund.
Last edited by whodidntante on Mon Oct 22, 2018 12:02 am, edited 1 time in total.

User avatar
nedsaid
Posts: 10680
Joined: Fri Nov 23, 2012 12:33 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by nedsaid » Mon Oct 22, 2018 12:02 am

JoMoney wrote:
Sun Oct 21, 2018 11:42 pm
Nate79 wrote:
Sun Oct 21, 2018 11:29 pm
How do you pick the 20 or 50 stocks? I wonder if anyone has run the numbers of the return over 30 years of the worst performing 50 stocks of the S&P?
The results of "monkeys throwing darts" at a list of stocks implies that it probably doesn't matter much how you select them, provided they're sufficiently large.

A fun test of market efficiency, would be to see if you could consistently pick a diversified portfolio of losing stocks... ok, maybe that wouldn't be "fun" ;)
The Wall Street Journal ran a "darts vs. experts" column for 14 years. Market experts stock picks were pitted against darts thrown at a stock table. Each contest lasted 6 months. The experts won 61% of the time vs. 39% for the darts. The experts beat the Dow 30 by only 51% to 49%. After the 6 month period, the stocks picked by darts continued to do well while the stocks picked by experts trailed off after initial highs after publication. Another factor was that the experts picked riskier stocks.

https://www.automaticfinances.com/monkey-stock-picking/

http://www.investorhome.com/darts.htm

So it appears that shorter term the experts won and that longer term the darts won. Six months, in my view is not long enough to determine much of anything. The individual stocks held in my portfolio have an average holding period of more than five years. Doing that, I have almost matched the US Total Stock Market Index.
A fool and his money are good for business.

User avatar
whodidntante
Posts: 4332
Joined: Thu Jan 21, 2016 11:11 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by whodidntante » Mon Oct 22, 2018 12:06 am

JoMoney wrote:
Sun Oct 21, 2018 11:42 pm

A fun test of market efficiency, would be to see if you could consistently pick a diversified portfolio of losing stocks... ok, maybe that wouldn't be "fun" ;)
The pessimists are doing well in this year's hedge fund contest. So far.

bpp
Posts: 1983
Joined: Mon Feb 26, 2007 12:35 pm
Location: Japan

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by bpp » Mon Oct 22, 2018 12:08 am

JoMoney wrote:
Sun Oct 21, 2018 11:42 pm
Nate79 wrote:
Sun Oct 21, 2018 11:29 pm
How do you pick the 20 or 50 stocks? I wonder if anyone has run the numbers of the return over 30 years of the worst performing 50 stocks of the S&P?
The results of "monkeys throwing darts" at a list of stocks implies that it probably doesn't matter much how you select them, provided they're sufficiently large.
In an efficient market, it shouldn't matter how one picks them. One would be unable to consistently pick either the winners or the losers.

So yes, throwing darts works fine, if one doesn't mind ending up with a small-cap tilt relative to the market. One can also just pick the largest-cap stock for the first pick, the second-largest for the second pick, etc., which will give closer tracking to a capitalization-weighted index.

No need to make it more complicated than that.

User avatar
JoMoney
Posts: 6307
Joined: Tue Jul 23, 2013 5:31 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by JoMoney » Mon Oct 22, 2018 12:15 am

nedsaid wrote:
Mon Oct 22, 2018 12:02 am
...
So it appears that shorter term the experts won and that longer term the darts won. Six months, in my view is not long enough to determine much of anything. The individual stocks held in my portfolio have an average holding period of more than five years. Doing that, I have almost matched the US Total Stock Market Index.
If you look at the SPIVA scorecard on the performance for active mutual funds vs the index, performance is better over shorter periods, active still loses, but it does better over shorter periods.
At the one year interval, the index does better than about 60% of the active funds, after 10 to 15 years the index beats 80%-90%+ of the active funds.
Very few active managers consistently outperform, and when they do, the managers seem to retire or the glut of new money ruins the prior performance.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
JoMoney
Posts: 6307
Joined: Tue Jul 23, 2013 5:31 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by JoMoney » Mon Oct 22, 2018 12:26 am

whodidntante wrote:
Mon Oct 22, 2018 12:06 am
JoMoney wrote:
Sun Oct 21, 2018 11:42 pm

A fun test of market efficiency, would be to see if you could consistently pick a diversified portfolio of losing stocks... ok, maybe that wouldn't be "fun" ;)
The pessimists are doing well in this year's hedge fund contest. So far.
Consistency at doing that would be the trick. I wonder if there's a way to go back and see the aggregate performance of just the short-sells in aggregate over multiple years.
I believe the contest allows people to pick from any Russell 3000 stock, which allows for more small caps to be selected. There is a bias to lousy stocks the smaller you go (but the few winners are much bigger wins).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

dumbmoney
Posts: 2293
Joined: Sun Mar 16, 2008 8:58 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by dumbmoney » Mon Oct 22, 2018 2:08 am

The Dow does alright with 30 stocks. Of course they are not picked at random from a 3000 stock list; they are large, representative stocks.
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.

jalbert
Posts: 3956
Joined: Fri Apr 10, 2015 12:29 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by jalbert » Mon Oct 22, 2018 2:14 am

50-60 may well do it. You may need 100 to be sure. A pitfall is many authors use short-term volatility as the measure of risk. Idiosyncratic risk is not so common that you will reliably see it over short periods of time, but over long horizons it has a much higher probability of showing up. As a result, the variance of long-term return, eg variance of terminal wealth at say retirement after a long accumulation period is a better risk measure. That length of horizon produces a better analysis of how many stocks are needed.
Last edited by jalbert on Thu Oct 25, 2018 12:42 am, edited 1 time in total.
Risk is not a guarantor of return.

Park
Posts: 573
Joined: Sat Nov 06, 2010 4:56 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by Park » Mon Oct 22, 2018 9:20 am

As people in this thread have alluded to, median stock return is lower than mean stock return. That's because of the positive skew of stocks. But as market cap increases, that becomes less of an issue. That's why the 30 stocks of the Dow give similar results to the total stock market. But when you get to small caps, the median return is definitely lower than the mean return. A few small cap stocks are responsible for a disproportionate amount of small cap return.

The following is a bit of a digression. It is commonly said that a few stocks are responsible for a high portion of stock market returns. I won't disagree with that, but it''s a little more complicated. When a megacap stock goes up by 30%, that has much more effect on total stock market return than a microcap stock going up 30%. So a few stocks are responsible for a high portion of stock market return, but that would be expected with a market cap benchmark.

aristotelian
Posts: 4917
Joined: Wed Jan 11, 2017 8:05 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by aristotelian » Mon Oct 22, 2018 10:21 am

bpp wrote:
Sun Oct 21, 2018 7:04 pm
The wiki page gives some reasons to do it. It's not just for high net worth individuals, and is not generally useful to beat expense ratios. The biggest driver is probably taxes.
+1.

For what it's worth, Vanguard's Wellesley fund has 72 stocks. Wellington has 101. PRIMECAP has 133. I think you would be taking about the same amount of risk as a typical actively managed fund. The question would be at what point the loss of diversification starts to outweigh the tax benefit.

Another question would be how to rebalance while maintaining low transaction costs and without offsetting the tax benefit of harvesting losses.

User avatar
nedsaid
Posts: 10680
Joined: Fri Nov 23, 2012 12:33 pm

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by nedsaid » Mon Oct 22, 2018 10:45 am

JoMoney wrote:
Sun Oct 21, 2018 11:12 pm
The smaller the market cap of the stocks, more are needed. The Dow 30 has managed just fine with 30 large cap stocks.
If you owned 50 large caps, you probably have something close to half the market covered by market cap, and they would predominately be the larger, well established, lower risk companies - implying less risk needing to be diversified.
If you were picking micro-cap stocks, 50 may not be nearly enough.

But if your intention is to hold a well diversified portfolio, why bother stock picking when you can buy and hold a low-cost broad market index fund so cheaply?
My individual stock portfolio of 15-18 stocks in my Brokerage IRA Account is mostly Large Cap and almost all big names you would recognize. It shouldn't be a mystery that my stocks have just about matched the performance of the US Total Stock Market Index. Size matters.
A fool and his money are good for business.

User avatar
JoMoney
Posts: 6307
Joined: Tue Jul 23, 2013 5:31 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by JoMoney » Mon Oct 22, 2018 12:31 pm

aristotelian wrote:
Mon Oct 22, 2018 10:21 am
...
Another question would be how to rebalance while maintaining low transaction costs and without offsetting the tax benefit of harvesting losses.
Rebalancing is a complication. From my own experience, it caused problems with wanting to tinker with things too much. It's surprisingly difficult to watch a stocks price move up or down by a large amount, or a major news event, and not feel the urge to "do something". I was also prone to some strange behavioral issues, gambling like urges, and weird attachments and shopping habits around stocks and brands I liked.
FWIW, being a 'price weighted' index, the Dow 30 does no "rebalancing" unless a stock gets replaced. There is a mutual fund, the "Corporate Leaders Trust" LEXCX that has had almost no trading or rebalancing since the fund started in 1935, it originally picked an equal weighting of 30 of the top dividend payers on the NYSE and all the current holdings are decedent of those original companies held at the weighting the market adjusted to.

In general I believe trading introduces additional risk to a portfolio, and if not carefully managed is a destructive force on it's own. Even besides the obvious drag caused with expenses, and the middle-men like market makers who take a cut through spreads and the like, I believe there are skilled traders out there - at least, I would point to the existence of bad traders who are prone to "buy high, sell low" and the various studies showing that the weighted transactions of most mutual fund investors underperform the same mutual fund they're investing in.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
oldcomputerguy
Posts: 3557
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by oldcomputerguy » Mon Oct 22, 2018 12:42 pm

Park wrote:
Sun Oct 21, 2018 3:39 pm
According to a group of scholars that includes investment guru Burton Malkiel, in years past "[a] conventional rule of thumb...[was] that a portfolio of 20 stocks [attained] a large fraction of the total benefits of diversification."
That may or may not be true, but assuming it is true, here’s the thing: nobody knows which 20 will do so.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

Broken Man 1999
Posts: 1585
Joined: Wed Apr 08, 2015 11:31 am

Re: 50 Stocks Enough to Diversify Idiosyncratic Risk?

Post by Broken Man 1999 » Mon Oct 22, 2018 1:37 pm

In one of Mr. Bogel's books he opined that a high net-worth individual might create their own mutual fund by buying the largest (by cap) 20-30 (can't remember exact number) stocks and holding forever. Not sure what a high net-worth individual might be, other than I am not such an individual. :D

As well, the most followed/reported stock average, Dow Jones Industrial Average, is made up of 30 stocks.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

Post Reply