How to manage a portfolio of securities

When you first start trading , one of the questions you ask yourself is how many stocks will you need to buy and hold in your portfolio. But before delving into the subject, let’s start with an incontrovertible fact: statistically, too many stocks in the portfolio reduce the economic return.

This does not mean that you shouldn’t diversify , but that disrupting the investment strategy of your financial portfolio is never good and right. Remember that the optimal number of stocks to hold in your financial portfolio will always depend on your skill as a trader (see also  Equity Portfolio: 3 Reasons Why Liquidity Matters ). Let’s see some useful advice:

  • usually, at the beginning of your trader career, you don’t have enough money to invest. In this case, it would be advisable to invest a maximum of 4-5 securities by spending a few thousand euros at a time. This is because purchases of smaller amounts will lead to a considerable erosion of any earnings due to the fixed costs for the investment;
  • remember that the securities to invest in should be related to companies that have their business in different market segments (manufacturing and industry, resources, finance and utilities).

However, you may not be “forced” to buy all the securities at once, but it could take months or years.

If successful, you may want to follow these tips:

  • Add (proportionally) other stocks : When your portfolio enters the € 50,000 / € 100,000 range, you may be aiming for a stock portfolio made up of 15/20 different stocks.
  • You could also increase the range of stocks or overweight a particular stock that has given you significant satisfaction and that you believe could do even better in the future.
  • In any case, try never to exceed the maximum limit of 40 titles . Because, otherwise, a significant gain on a stock will result in a residual increase in the value of the entire portfolio.

Managing a Securities Portfolio: Browne’s Theory

Among the most successful theories concerning the management of the securities portfolio, there are certainly those of the US financial and political analyst Harry Browne . His studies, aimed at the search for the perfect portfolio over time ( permanent portfolio ), “prophesied” maximum diversification.

The basic assumption was that financial markets are like large communicating vessels, and being present in all asset classes at the same time guarantees not only greater success, but also a higher level of security (see also  Guide to Asset Classes ).

Quite simply, the perfect portfolio according to Browne is divided into four parts: 25% in stocks, 25% in gold, 25% in short-term government bonds, and finally 25% in long-term government bonds. This is a perpetual subdivision that can allow your securities portfolio to overcome all the different market conditions without too many jolts thanks to diversification .