In a recent interview with The Investor’s Podcast, one of my favorite value investors, François Rochon from Giverny Capital, shared some straightforward advice about building a smart investment portfolio. His main takeaway? Owning between 20 to 25 high-quality stocks gives you the right mix of diversification and concentration for long-term success.
Rochon explained that while diversification is important, it shouldn’t come at the expense of quality. “We try to have a group of diverse businesses and diverse industries, but I think it’s much more important to own great companies than to have some kind of proper diversification,” he said.
In other words, spreading your money too thin across mediocre stocks just to check the diversification box isn’t the way to go.
The 20-25 stock range hits a sweet spot because it provides enough protection without diluting your returns. “You’re diversified enough so you don’t have a big weight in one single security that could really hurt you if something goes wrong,” Rochon noted.
“It’s also concentrated enough so that you have some odds of beating the index.” His point is clear – own too many stocks and you’ll just end up matching the market rather than outperforming it.
But Rochon doesn’t stop at just counting stocks. He’s also picky about which sectors to avoid entirely. His firm stays away from commodities and natural resources because “it’s very hard – not impossible, but very hard – to build a competitive advantage when you’re selling a commodity.” Without pricing power or strong moats, these businesses often struggle to deliver consistent returns.
They’re equally cautious about heavily regulated industries like utilities and certain healthcare segments. “We’re not very interested in investing in utilities or healthcare-related businesses where there’s lots of exposure to Medicare or Medicaid,” Rochon explained.
The constant changes in regulations and reimbursement rates make these areas too unpredictable for his liking, though he does see more stability in medical equipment companies compared to healthcare services.
At the end of the day, Rochon’s strategy comes down to keeping things simple but disciplined. Focus on finding outstanding businesses, keep your portfolio at a manageable size where each holding can actually make a difference, and avoid sectors where the deck is stacked against consistent profitability. His 20-25 stock approach offers a practical middle ground between being too concentrated and too diversified – enough to sleep well at night while still giving your portfolio room to grow.
This balanced perspective from an experienced investor like Rochon serves as a good reminder that successful investing isn’t about extreme strategies, but about finding that sensible middle path where quality meets prudent risk management.
You can find the entire interview here:
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
