12-07-2021, 09:02 AM
Seth Klarman wrote in Margin of Safety…
Even relatively safe investments entail some probability, however small, of downside risk. The deleterious effects of such improbable events can best be mitigated through prudent diversification. The number of securities that should be owned to reduce portfolio risk to an acceptable level is not great; as few as ten to fifteen different holdings usually suffice. Diversification for its own sake is not sensible. This is the index fund mentality: if you can’t beat the market, be the market.-Seth Klarman
Marks also chimed in.....
Diversification is a helpful tool, but it should only be employed to the point where its costs equal its benefits. Adding positions beyond that point is watering down a portfolio – the benefits are minimal, but the costs detract from an investors ability to add value. A lot of investors tend to confuse Risk with Volatility (they are not the same) - Howard Marks
Marks goes further -
Is a relatively concentrated strategy really more risky for the investor? There’s no doubt that the concentrated portfolio will exhibit more volatility on average than a highly diversified one, but volatility isn’t a very useful descriptor of risk.If we think that risk is roughly equivalent to the probability of losing money on an investment, then perhaps we should ask, “are you more likely to lose money owning a concentrated portfolio or a highly diversified portfolio?” The common sense answer is that it depends on what’s in each portfolio! - Howard Marks
IMHO there is no magic "number" of securities one should strive to hold during portfolio construction. It's better for the retail investor to concentrate on understanding the differences between Systemic and Unsystemic Risk , investing in Quality companies with strong balance sheets, and gain an understanding of how you can depend on your portfolio to react during each phase of a full economic business cycle (early, mid, late, recessionary). Once achieved the investor can then concentrate on increasing share count in said securities when the market hands you miss-priced opportunities.
- Just Thoughts,
-Scoot
"Use an appropriate "margin of safety" to manage risk. This way, you will not lose too much when you are wrong, and you will make much more when you are right. This way you can let your portfolio generate higher than market returns with less risk, in a sustainable and stable way"- Li Lu
Even relatively safe investments entail some probability, however small, of downside risk. The deleterious effects of such improbable events can best be mitigated through prudent diversification. The number of securities that should be owned to reduce portfolio risk to an acceptable level is not great; as few as ten to fifteen different holdings usually suffice. Diversification for its own sake is not sensible. This is the index fund mentality: if you can’t beat the market, be the market.-Seth Klarman
Marks also chimed in.....
Diversification is a helpful tool, but it should only be employed to the point where its costs equal its benefits. Adding positions beyond that point is watering down a portfolio – the benefits are minimal, but the costs detract from an investors ability to add value. A lot of investors tend to confuse Risk with Volatility (they are not the same) - Howard Marks
Marks goes further -
Is a relatively concentrated strategy really more risky for the investor? There’s no doubt that the concentrated portfolio will exhibit more volatility on average than a highly diversified one, but volatility isn’t a very useful descriptor of risk.If we think that risk is roughly equivalent to the probability of losing money on an investment, then perhaps we should ask, “are you more likely to lose money owning a concentrated portfolio or a highly diversified portfolio?” The common sense answer is that it depends on what’s in each portfolio! - Howard Marks
IMHO there is no magic "number" of securities one should strive to hold during portfolio construction. It's better for the retail investor to concentrate on understanding the differences between Systemic and Unsystemic Risk , investing in Quality companies with strong balance sheets, and gain an understanding of how you can depend on your portfolio to react during each phase of a full economic business cycle (early, mid, late, recessionary). Once achieved the investor can then concentrate on increasing share count in said securities when the market hands you miss-priced opportunities.
- Just Thoughts,
-Scoot
"Use an appropriate "margin of safety" to manage risk. This way, you will not lose too much when you are wrong, and you will make much more when you are right. This way you can let your portfolio generate higher than market returns with less risk, in a sustainable and stable way"- Li Lu