In this interview with Kostadin Ristovski, Aswath Damodaran discusses how many stocks you should have in your portfolio. Here’s an excerpt from the interview:
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Damodaran: I think it’s a sign of arrogance when you say I’ve found the best company, because remember there are two things that have to hold for you to make money on an investment.
First you got to be right about the value of the company.
The second is the price has to adjust to the value, right. Remember that’s not in your control.
If you feel certain on both. You’re certain about the value, and certain the price will adjust to value, guess what you can hold just one company. That’s the exact opposite.
The less certain you get about either one or both of those components the more you’ve got to spread your bets.
And I’m going to argue that I feel uncertain about value. I feel uncertain even if I’m right about value that price will adjust to value, and it therefore tracks that I need more companies in my portfolio.
If Mark Cuban says look I can live with five companies in my portfolio, it’s his money. Maybe he feels more comfortable with his valuation than I do.
Maybe he feels more certain that the market will adjust to value than I do.
In which case five is fine. So I’m not going to say five is wrong and 30 is right. For me 30 to 40 is right because I feel uncertain about value.
You can watch the entire discussion here:
Article by The Acquirer's Multiple.
