04-29-2021, 09:07 PM
(This post was last modified: 04-29-2021, 09:09 PM by ken-do-nim.)
Additional thought on this topic. What I was finding was that positions with little weight in the portfolio end up as just ... noise. If you have say 6 positions equal to half the total value of the portfolio, and 40 positions adding up to the other half, the big six dictate most of the movement. So I think it's less a question of how many positions makes sense and more of a question of how much divergence the min & max have. Since some of my largest positions far outweigh the smaller ones and for tax reasons I'm not in a position to break them up, I've chosen to focus on consolidating some of the smaller ones.
There is, however, also a limit to just how many companies a person can reasonably stay knowledgeable and up to date on. In the book The Tipping Point, author Malcolm Gladwell explains what channel capacity is, and describes the cognitive rule of 150 (pages 175-181). I believe the rule of 150 makes perfect sense to apply to keeping up to date with one's portfolio, therefore the upper limit of how many equities anyone can keep track of effectively is 150 (and for many people, the upper limit would be less than that).
There is, however, also a limit to just how many companies a person can reasonably stay knowledgeable and up to date on. In the book The Tipping Point, author Malcolm Gladwell explains what channel capacity is, and describes the cognitive rule of 150 (pages 175-181). I believe the rule of 150 makes perfect sense to apply to keeping up to date with one's portfolio, therefore the upper limit of how many equities anyone can keep track of effectively is 150 (and for many people, the upper limit would be less than that).