Agree with you and the literature. Nice post. There is a neat page on this in Chris Mayer’s 100-bagger book which I would love to see updated, in which he lists our the top 6/8 hedge fund managers by performance or size and highlights they all owned … 8-10 individual stocks.
Definitely seems like the fewer stocks an investor owns, the higher the probability of outperforming. The key is to come up with that sweet spot (probably 8 - 15 stocks) where high volatility doesn’t erode geometric compounding. 8 - 15 is probably the ideal number.
Very good post! I really liked both the points about the number of stocks and the difference between arithmetic and geometric returns. The graph and examples are excellent, too! I think the points you make are very thought-provoking (saved and will re-read this post later).
Personally, I hold nine stocks, mostly deep value, and they all have net cash. Many of them are non-cyclical and most of them have non-cyclical elements. Reading your post has confirmed my view that it could be a good choice.
Regarding cash as a holding. I agree in principle. But in practice, I am quite bad at knowing when to use cash. It almost becomes a distraction (not being fully invested) and I think too much what to do with the cash holding. Beeing (almost) fully invested all the time works for me in terms of focus. Not optimal, but it's simple!
Thanks Gustav! Yeah, arithmetic and geometric returns can be quite different. Geometric return is what matters.
I have a similar approach. I prefer to hold fewer stocks with cash balances and low debt levels that have high earnings yields. Nothing wrong with being fully invested. I think it comes down to personal preference.
Agree with you and the literature. Nice post. There is a neat page on this in Chris Mayer’s 100-bagger book which I would love to see updated, in which he lists our the top 6/8 hedge fund managers by performance or size and highlights they all owned … 8-10 individual stocks.
Definitely seems like the fewer stocks an investor owns, the higher the probability of outperforming. The key is to come up with that sweet spot (probably 8 - 15 stocks) where high volatility doesn’t erode geometric compounding. 8 - 15 is probably the ideal number.
Very good post! I really liked both the points about the number of stocks and the difference between arithmetic and geometric returns. The graph and examples are excellent, too! I think the points you make are very thought-provoking (saved and will re-read this post later).
Personally, I hold nine stocks, mostly deep value, and they all have net cash. Many of them are non-cyclical and most of them have non-cyclical elements. Reading your post has confirmed my view that it could be a good choice.
Regarding cash as a holding. I agree in principle. But in practice, I am quite bad at knowing when to use cash. It almost becomes a distraction (not being fully invested) and I think too much what to do with the cash holding. Beeing (almost) fully invested all the time works for me in terms of focus. Not optimal, but it's simple!
Thanks Gustav! Yeah, arithmetic and geometric returns can be quite different. Geometric return is what matters.
I have a similar approach. I prefer to hold fewer stocks with cash balances and low debt levels that have high earnings yields. Nothing wrong with being fully invested. I think it comes down to personal preference.