How Many Stocks?

Roy, I have clients who enjoy your system as it follows their personal philosophy. They are increasingly asking to reduce the number of securities in their portfolio and follow the “Warren Buffett” approach more closely (less is more).
 
We do not have the stature of WB and the capability of taking significant positions in the stocks we buy. Your models and their posted returns are based on eight to 10 securities. You also mentioned in the January newsletter that in order to reduce volatility and increase potential returns that you suggest a 40/40/20 mix of the three portfolios you outline.
 
Therefore my questions are:
How many stocks should a portfolio hold based on your above suggestions?
Which eight to 10 stocks do you chose?
 
Any insight to the above questions, or other suggestions would be very helpful. Thank you in advance.—R. K.

Roy Ward: In answer to your first question, I like to stay quite diversified to spread risk. I advise a minimum of 12 stocks for small portfolios and up to 30 stocks for portfolios over $1 million.
 
I recommend choosing stocks from the Classic Value Model, Wise Owl Model and Special Features using whatever criteria is appropriate for the individual investor. If the investor is conservative, I suggest buying more Wise Owl stocks, whereas if the investor is aggressive, more Special Feature stocks might be more appropriate. In any case, I like to buy stocks in as many sectors as is practical. I also prefer to buy equal dollar amounts of each and every stock.

Roy WardJ. Royden Ward
Value Investment Specialist, Analyst and Editor of Cabot Benjamin Graham Value Letter

J. Royden Ward has been editor of the Cabot Benjamin Graham Value Letter since 2003. The Letter features The Wise Owl Model, the Classic Benjamin Graham Value Model and monthly Special Features. The Letter is directed to individual investors seeking a guide to profitable value investing. Roy has spent his entire career seeking strong investment returns for his clients. In 1969, he developed a computerized model based on formulas for a unique ranking system created by investment legend Benjamin Graham.


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