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Diversification

How Many Stocks Should One Own?
Diversification reduces risk by allocating funds to several securities and asset classes (e.g., stocks, income, fixed income, commodities, private equity, real estate, etc.). Different asset classes react differently to macroeconomic events that are difficult, if not impossible, to forecast. For example, bonds tend to outperform stocks during recessions. An investor who has a portfolio comprised of bonds and stocks will experience less pain than an investor who has 100% exposure to stocks. Diversification is one of the most important concepts in personal finance.

At tickrz we focus exclusively on one asset class: stocks. How many stocks should one own? There’s no magic number and it’s up to each individual to find their own risk tolerance. We strongly believe the starting number should be no less than 20 stocks, or 5% invested in each stock. Looking at Compustat data between January 1986 and June 1999, Surs and Price found that a 60 stock portfolio achieves about 98% of the market’s standard deviation and a R2 of 88% of the market (or in other words, a 60 stock portfolio achieves less than 90% of full diversification).

Factor Diversification
For a variety of reasons, investing styles can go in and out of favor. During the late nineties tech-driven bull market, investors employing a value style experienced very challenging times. After the market peaked, value stocks came back into vogue as tech stocks crashed. During bear markets, stocks with quality attributes outperform, but tend to lag value and momentum strategies as the market rebounds.

Having exposure to several different factors can provide a smoother ride. According to MSCI, combining multiple factors can lead to lower volatility and higher Sharpe and information ratios.

Our site gives you the ability to sort the investment universe via different investment factors. When constructing a portfolio, you may want to considering diversifying across factors. Some of our screens, like our tickrz Ranking Screener and Warren Buffett Screener, combine different factors for you.

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Diversification

How Many Stocks Should One Own?
Diversification reduces risk by allocating funds to several securities and asset classes (e.g., stocks, income, fixed income, commodities, private equity, real estate, etc.). Different asset classes react differently to macroeconomic events that are difficult, if not impossible, to forecast. For example, bonds tend to outperform stocks during recessions. An investor who has a portfolio comprised of bonds and stocks will experience less pain than an investor who has 100% exposure to stocks. Diversification is one of the most important concepts in personal finance.

At tickrz we focus exclusively on one asset class: stocks. How many stocks should one own? There’s no magic number and it’s up to each individual to find their own risk tolerance. We strongly believe the starting number should be no less than 20 stocks, or 5% invested in each stock. Looking at Compustat data between January 1986 and June 1999, Surs and Price found that a 60 stock portfolio achieves about 98% of the market’s standard deviation and a R2 of 88% of the market (or in other words, a 60 stock portfolio achieves less than 90% of full diversification).

Factor Diversification
For a variety of reasons, investing styles can go in and out of favor. During the late nineties tech-driven bull market, investors employing a value style experienced very challenging times. After the market peaked, value stocks came back into vogue as tech stocks crashed. During bear markets, stocks with quality attributes outperform, but tend to lag value and momentum strategies as the market rebounds.

Having exposure to several different factors can provide a smoother ride. According to MSCI, combining multiple factors can lead to lower volatility and higher Sharpe and information ratios.

Our site gives you the ability to sort the investment universe via different investment factors. When constructing a portfolio, you may want to considering diversifying across factors. Some of our screens, like our tickrz Ranking Screener and Warren Buffett Screener, combine different factors for you.

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About tickrz
Key Concepts
Great Investors