I received a very good comment and few questions in response to my dissusion post about number of stocks in a long term portfolio. I already provided my views in the comment section which, most likely, will get buried in archives. Other readers may not be able to read it. So I enhanced my response and posting it here. The comment that I received is reproduced below in italics.
Pl. do not limit by numbers for a successful portfolio. In our this website itself, it is recommended 5 long term stocks like NTPC, ONGC etc. I am surprised SBI and Reliance are not there. These two gaints figure in top 10 in the world itself. As and when you find a growth story of companies like Bharti airtel, (they grow vertical and horizontal also gradually). It should find a place in our portfolio. Then do not forget to profit from stock markets ups and downs. This is apart from long term portfolio. To get regular monthly income for people like retirees, Options and futures, Commodities also do not ignore. With a little study, there is money to make. Share your ideas and reactions, please. [Please note: I removed the name for privacy]
This comment has multiple aspects and hence, let me express my views one at a time.
- I am not limiting number of shares for a long term investing or for a portfolio to succeed. My limit is based on my time constraints or my ability to manage. Certainly, it is individual’s choice and one’s ability to manage and be comfortable with it. Unless an individual does it as a part of full time profession, I doubt one can do it proficiently with downside risk management.
- On SBI and Reliance – It is not about SBI and Reliance being a good company or not. In my view, both of these companies have good management and they have very good competitive market positioning. I have said many times on this blog I like Ferrari and would love to have it. But they are just too expensive to have it. I would love to have a penthouse with sea views. Unfortunately, they are also expensive. And like you and me, everybody else knows that they are good companies to own. Therefore, they are always very expensive. I do not buy expensive stocks. If share price for both companies are in fair value or get cheaper, then yes, I would jump to buy them.
- On Bharti Airtel – It is good companies and well positioned for future growth. But I am not willing to pay the market price it trades on. It is too expensive! With respect to making money from growth companies like Bharti Airtel – One needs to buy shares/stocks before the growth curve (and not when it becomes famous and big brand). Personally, I find it hard to determine which new company will become big and successful, so I avoid it. Yes, I will buy if their share price becomes cheaper. By cheaper I mean cheaper in value (and not cheap in absolute Rs. amount).
- On making money from market volatility: I personally do not have appetite and time to follow market gyrations. In addition, I am not skilled enough to be a consistent winner in trading. Making money consistently over an extended period of time by trading does not fit with my thought process or personality. I have determined, for my wealth accumulation, long term investing is only way to go and I am very confident and comfortable with it. Furthermore, my reading tells me there are very few well known traders that have been successful on consistent basis. However, there are numerous long term investors who have been consistently successful. i.e. relatively there are fewer number of “big shot/well known traders” than “big shot/well known investors”.
- I do not like options and futures as a product. They are speculative driven and I just cannot understand them. I do understand them, but I do not understand them enough to execute them in my portfolio. They are speculative driven and hence, I consider them crap. So I stay away from them. I am happy for folks who make money from these products. But it’s not for me.
In financial markets, there are numerous methods, styles, approach, and strategies by which one can make money. It is important to understand what you are good at, what method you can use with consistent positive returns, what are your personality and risk profile limitations, etc. If you can figure this out then focus only on that aspect. You are bound to succeed. It is not necessary to jump on every other method just because other person is doing it or some advisor or planner is saying to do it. Key is look for consistency over time and total return, and not short one time returns. Wealth accumulation is a long term process, unless you win a lottery or reality show.
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