What is the minimum size (percentage) holding that is worthwhile?

[mathjak107]

i will play around speculate in individual stocks with as little as 10k in a multi 7 figure portfolio .

but as far as core positions 10% or so is min i bother with and all core positions are either fund , etf or berkshire which is like owning a diversified fund .

just bought a 15k speculative play friday in dbc commodities fund since oil took a decent hit. but these are just fun trades

 

[Closet_Gamer]

Historically, I've been willing to carry small positions (<2% of portfolio) if that's what the math of my allocation concept told me. For example, within my bond allocation I carry a modest high-yield component. When I have bought individual bonds/CDs, it been over time and I've wound up with boatload of $5k positions.

I am moving away from that and looking to consolidate into few positions as things mature.

 

[Bryan Barnfellow]

So, if I had a portfolio of several hundred stocks and the top ten represented about one-third of my holdings, that would be a red flag? The top two last time I checked represented about 14%.

-BB

 

[tulak]

I wouldn’t hold anything less than 5%. That’s assuming index funds. I’m down to two funds and a bunch of TIPS at this point and the smallest of the two funds is ~14%.

For individual stocks, that’s play money and I’ll hold smaller positions.

 

[Montecfo]

So, if I had a portfolio of several hundred stocks and the top ten represented about one-third of my holdings, that would be a red flag? The top two last time I checked represented about 14%.

-BB

I'm not sure how you follow several hundred stocks.

For me I would be looking to trim both the number and top holdings.

Especially any holdings above 10%.

And with your analysis, the trimming might seem more urgent if those top holdings are in the same or similar industries.

As an aside, all my comments in this thread are aimed at individual stock holdings. None of these comments really apply to fund holdings in my view.

 

[OldShooter]

... As an aside, all my comments in this thread are aimed at individual stock holdings. None of these comments really apply to fund holdings in my view.

In my case, probably yours too, talking about fund holdings is based on diversified portfolios like VTSAX or VT, not crazy people like Cathy Wood. 20% in ARKK would IMO definitely be an imprudent concentration.

 

[Gumby]

I'm not sure how you follow several hundred stocks.

For me I would be looking to trim both the number and top holdings.

Especially any holdings above 10%.

And with your analysis, the trimming might seem more urgent if those top holdings are in the same or similar industries.

As an aside, all my comments in this thread are aimed at individual stock holdings. None of these comments really apply to fund holdings in my view.

I think what he was getting at is the fact that the S&P 500 is quite concentrated. MSFT and AAPL together constitute about 13.5%. Add in NVDA, AMZN and META to get over 26%. So if you were holding only SPY, >26% of your money would be in only 5 stocks. If you expand the list to the top 10, you would indeed be near 1/3 of your holdings in only ten stocks. At least, that is my interpretation.
https://www.slickcharts.com/sp500

 

[Dash man]

Minimums don’t seem important to me if I have a reason for buying a stock. I’m about 80% individual stocks (about 40) and the rest ETFs. I have AVGO that has recently surpassed 10% of my equities and I trimmed some off the top. It just kept growing. I donated AVGO and LLY to my DAF, but they keep growing. Nice problem to have.
I mostly have dividend growing stocks and don’t adjust things very often. I watch for changes in fundamentals and will sell if needed. I no longer own BA or MMM since I sold them at the first sign of serious trouble. I’m always willing to trim my holdings in a stock if something good comes along worth buying.

 

[Montecfo]

In my case, probably yours too, talking about fund holdings is based on diversified portfolios like VTSAX or VT, not crazy people like Cathy Wood. 20% in ARKK would IMO definitely be an imprudent concentration.

Indeed. The OP question to me has a different answer depending on whether we are discussing individual stocks or funds.

With funds it becomes an asset allocation issue, assuming you are talking about broad sectors such as small cap, midcap emerging markets etc. at minimum.

 

[Montecfo]

I think what he was getting at is the fact that the S&P 500 is quite concentrated. MSFT and AAPL together constitute about 13.5%. Add in NVDA, AMZN and META to get over 26%. So if you were holding only SPY, >26% of your money would be in only 5 stocks. If you expand the list to the top 10, you would indeed be near 1/3 of your holdings in only ten stocks. At least, that is my interpretation.
https://www.slickcharts.com/sp500

You might be right. He did not make it clear he owned anything (used the word "if" ). But owning the index is not the same as owning a " portfolio of several hundred stocks" . I would not be doing that for sure. But some of the individual stocks I like.

 

[thefist]

Adding small amounts of stocks is fine. I’ve thought recently about setting a low limit myself. I’m thinking 1% is about right. But maybe you take something even smaller if the potential return can be high. Another name for small positions is a learning positions. It’s kind of a psychological ploy really, to force you to spend more time on a watchlist stock that would otherwise be one of many on a list.
A small position could also be appropriate to start a position in a mature company that might be priced a bit high now. NVDA and MSFT could be examples of this today.
Also, great companies rarely get cheap by market standards. In this case the small position could be a form of DCA.

 

[Texas Proud]

So, if I had a portfolio of several hundred stocks and the top ten represented about one-third of my holdings, that would be a red flag? The top two last time I checked represented about 14%.

-BB

It has been a long time but I do remember that portfolio theory says that anything over about 30 stocks does not give you much more diversification...



So, if buying individual stocks 30 diversified stocks is all you need...

 

[Midpack]

IIRC Dr Bernstein said less than 5% isn’t worthwhile, but 10% seems like a good minimum. Anything less has a trivial effect, good or bad, why bother?

 

[thefist]

IIRC Dr Bernstein said less than 5% isn’t worthwhile, but 10% seems like a good minimum. Anything less has a trivial effect, good or bad, why bother?

Kinda shoots a hole in market cap weighted mutual funds.

 

[Bryan Barnfellow]

I think what he was getting at is the fact that the S&P 500 is quite concentrated. MSFT and AAPL together constitute about 13.5%. Add in NVDA, AMZN and META to get over 26%. So if you were holding only SPY, >26% of your money would be in only 5 stocks. If you expand the list to the top 10, you would indeed be near 1/3 of your holdings in only ten stocks. At least, that is my interpretation.
https://www.slickcharts.com/sp500

Exactly my point, yes. And you win the prize for quickly recognizing that I was talking about the S&P 500. Sometimes holding index funds can under-diversify you in important ways, depending on the holdings. So, even a 60% equity allocation that is 100% in the S&P could still give you some holding weights that you ordinarily would reject in a portfolio of individual stocks.

-BB

 

[Bryan Barnfellow]

I'm not sure how you follow several hundred stocks.

For me I would be looking to trim both the number and top holdings.

Especially any holdings above 10%.

And with your analysis, the trimming might seem more urgent if those top holdings are in the same or similar industries.

As an aside, all my comments in this thread are aimed at individual stock holdings. None of these comments really apply to fund holdings in my view.

So if Nvidia craters in a portfolio of individual stocks, it won't in the index somehow? I believe that if you hold a stock via an index it's no different than holding it in a portfolio of individual stocks (assuming the latter has good diversity) or avoid wildly speculative but very popular names. At least with an individual stock portfolio I can trim holdings that exceed my weight limits--the topic of this thread. The S&P right now seems to have some dangerous overweighting. As a retiree I would never buy or hold Nvidia in my own portfolio right now.

-BB

 

[Dash man]

Starting with a small position in a stock that proves to be a great company can have a large impact on your portfolio. We started with small a small position of about $10k in AVGO, and now it’s our largest holding. We did add to it along the way. A couple of Fridays ago we purchased 136 shares of ARM and it’s since up 30%. Who knows if it will be a long term winner, but a nice start.

 

[Al18]

Nvidia has a long track record of making money. They’ve been in business since 1993. For the past 25 years, there have only been 2 GPU choices for gamers: Nvidia and ATI. ATI was bought AMD in 2006, who continues to make and sell GPUs under the Radeon label. Nvidia has always been ahead of the curve by years, using their latest designs and utilizing new memory chip designs for machine vision, physics modeling, bitcoin mining and now AI. Nvidia is selling more than 500 million dollars of AI chips to Google and Meta this year. Some think AI is a stock market bubble - I don’t.

 

[Montecfo]

So if Nvidia craters in a portfolio of individual stocks, it won't in the index somehow? I believe that if you hold a stock via an index it's no different than holding it in a portfolio of individual stocks (assuming the latter has good diversity) or avoid wildly speculative but very popular names. At least with an individual stock portfolio I can trim holdings that exceed my weight limits--the topic of this thread. The S&P right now seems to have some dangerous overweighting. As a retiree I would never buy or hold Nvidia in my own portfolio right now.

-BB

Holding individual stocks and holding an index containing one or more or the same stocks are very different.

If you hold individual stocks you can buy or sell that stock only.

With an index you are buying or selling a piece of all of the holdings in the index.

These two situations are not similar.

So do you like indexes or not?

By the way, you probably hold several and perhaps many stocks more expensive than Nvidia.

The thread is about minimums to hold. It is not about maximums per se. But I do think the two are related.

 

[rayvt]

Right. I happened to be looking at all our individual & joint accounts combined, sorted by holding value, and noticed a number of holdings that had weights far below 1%. Like 0.4% to 0.10%

 

[target2019]

Right. I happened to be looking at all our individual & joint accounts combined, sorted by holding value, and noticed a number of holdings that had weights far below 1%. Like 0.4% to 0.10%

I have that situation. But I don't just consider the % of total AA.

But the obvious conclusion is, "Yes, I can trim these, or maybe gift the positions to my children."

 

[CaliKid]

I like a lot of diversification. Stocks of all types, sectors, companies, etc.... Plus, real estate of various types, locations, etc.... Plus, some cash, bonds, alts, and even way less than 1% of the unspeakable via Coinbase. Diversify, diversify, diversify. It's a bit of work at tax time but not that big of a deal.

 

[OldShooter]

Nvidia has a long track record of making money. They’ve been in business since 1993. For the past 25 years, there have only been 2 GPU choices for gamers: Nvidia and ATI. ATI was bought AMD in 2006, who continues to make and sell GPUs under the Radeon label. Nvidia has always been ahead of the curve by years, using their latest designs and utilizing new memory chip designs for machine vision, physics modeling, bitcoin mining and now AI. Nvidia is selling more than 500 million dollars of AI chips to Google and Meta this year. Some think AI is a stock market bubble - I don’t.

One characteristic of a bubble is that people stop looking at price.

Investing guru Ben Graham (in "The Intelligent Investor") on the problem: " ... we hope to implant in the reader a tendency to measure or quantify. For 99 issues out of 100 we could say that at some price they are cheap enough to buy and at some other price they would be so dear that they should be sold. The habit of relating what is paid to what is being offered is an invaluable trait in investment. In an article in a women’s magazine many years ago we advised the readers to buy their stocks as they bought their groceries, not as they bought their perfume. The really dreadful losses of the past few years (and on many similar occasions before) were realized in those common-stock issues where the buyer forgot to ask 'How much?' "

Sir John Templeton: “The four most expensive words in the English language are 'This time it’s different.' ”

Good luck, @Al18. I'll be sitting this one out, as I have with 50 years of past bubbles.

 

[Koolau]

I like a lot of diversification. Stocks of all types, sectors, companies, etc.... Plus, real estate of various types, locations, etc.... Plus, some cash, bonds, alts, and even way less than 1% of the unspeakable via Coinbase. Diversify, diversify, diversify. It's a bit of work at tax time but not that big of a deal.

And PMs.

 

[Koolau]

One characteristic of a bubble is that people stop looking at price.

Investing guru Ben Graham (in "The Intelligent Investor") on the problem: " ... we hope to implant in the reader a tendency to measure or quantify. For 99 issues out of 100 we could say that at some price they are cheap enough to buy and at some other price they would be so dear that they should be sold. The habit of relating what is paid to what is being offered is an invaluable trait in investment. In an article in a women’s magazine many years ago we advised the readers to buy their stocks as they bought their groceries, not as they bought their perfume. The really dreadful losses of the past few years (and on many similar occasions before) were realized in those common-stock issues where the buyer forgot to ask 'How much?' "

Sir John Templeton: “The four most expensive words in the English language are 'This time it’s different.' ”

Good luck, @Al18. I'll be sitting this one out, as I have with 50 years of past bubbles.

You've likely shared already (and, sorry, I've forgotten) what is your alternative to stocks? Cash at interest? Lately, that's not so bad a strategy. But for several years, it would have lost vs inflation. I don't really like the stock market, but by keeping my AA at 1/3 or so, I figure the potential gain is worth the potential loss. Just the fool-hardy gambler in me, I guess. YMMV