During his recent discussion with Mario Gabelli, John Rogers discussed the sweet spot in terms of how many stocks you should own. Here’s an excerpt from the discussion:
Rogers: We both started our funds in 1986. You learn over that time what your sleep at night kind of risk you’re willing to take.
And I found that if I had too few stocks, less than 30, I wasn’t comfortable. Having two large positions and if something went wrong it was just very very hard for me.
But I felt if you got over 40 you were getting toward that Charlie Munger problem where you didn’t know your names as well as you should.
You couldn’t be a true expert in each and every company. And the idea of being able to be focused there. So we found the sweet spot right around 35 stocks. It’s kind of like where I like to be. We’ll let a position ride to six percent of the portfolio and that’s it.
Most of our major holdings are somewhere in that four to four and a half percent when we really have true conviction, and think the stock is very cheap.
So concentrated portfolios we think are very important. There’s some academic research that shows that that’s the best way to invest.
Martin Kramer, the dean of Notre Dame’s business school talks about having high active share, relatively concentrated portfolios, own them for the long run, and that’s the best way to be positioned.
You can watch the entire discussion here:
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