Hi guys it's sasha if you are investing into specific companies, rather than just putting your money in the market through an etf or an index fund, getting the strategy right is critical. After all, the majority of active investors will end up losing versus the market in the long run. So it's important to do your homework. If you want to be one of the small number of investors that end up actually getting better results, so how many different companies should you hold in your investing portfolio? Should you focus on a very small number of winners, or do you need to diversify to reduce volatility and risk? This is exactly what i'm going to be going through in this video and i'll.

Tell you what my view is and why i have that view, but before i do i need to make a brief disclaimer. I am not a financial advisor. I cannot provide financial advice to you and if you do need financial advice, please go and seek the help of a suitably qualified professional. This entire video is just my personal opinion, so here's the thing that is important to consider.

Why are you investing in specific companies? Instead of just using the index, despite knowing that the overwhelming chance, the overwhelming likelihood is that you would earn far bigger returns, if you just put your money into an etf on average, well, the only reason you do it other than it being more interesting, of course, Is that you think that you might get a better return by picking the stocks yourself? So you think that you'll be able to pick out the winners who will outperform the market and not pick the losers which are going to drag the market down with their performance? Okay, so if that is your objective, then there are two goals that you need to achieve: number one. You need to be able to pick out the winners from the losers in a consistent and robust way. You want to be sure that you're making the right picks picking the companies that are going to go and do well and number two. You need to have a robust enough portfolio that if some of your pigs don't do well, and some of your picks will not do well, then the whole portfolio doesn't go down the pan.

That second point is really important. Sure there is always going to be somebody who puts all of their money into one stock and then that stock happens to go ballistic and that person becomes very rich from it, but on average for every one person who goes and does that there are many. Many thousands of other people who go and put all their eggs into the wrong basket at the wrong time, and then, when that particular bit doesn't pay off those people tend to really suffer. So, let's break it down.

You want to spread your money out enough that if some of your picks don't do well, you still grow your portfolio because, no matter how good you are at maths, no matter how good you are forecasting things happen. Sudden unpredictable things do happen. Markets change, market crashes happen, companies make big mistakes, all kinds of things happen. The list is endless, so i see a lot of advice out there that takes this to the extreme.

A lot of people will say that you have to spread your money around as much as possible to diversify, but if you want to diversify how many companies should you hold? I have seen people advocating holding as many 50 to 100 positions and in some cases, even more and i've seen a lot of people online show portfolios which have huge numbers of companies in them, and here is a problem that i see with that mindset. If you're holding a hundred companies, i am presuming you'll be holding some of the big guns. You know: google apple, microsoft, tesla, amazon, facebook, those kind of companies - and these are all in the top 10 biggest companies in the s p, 500 and the 10 biggest companies. In the s, p, 500 are 27.3 off the sum off the entire s.

P, 500.. So add in some other popular big stocks like disney adobe, paypal, intel, netflix coca-cola and suddenly your diversified portfolio that is trying to beat the market begins. Looking a lot like you know, the market, where the companies that you have chosen are actually comprising well over 50, of the total value of the s p 500 and those are the companies that are going to be driving the performance of the s p. 500.

So at this point, you're not really trying to pick the winners, because you are representing the majority of the market within your portfolio. What you're actually doing is you're trying to identify the losers and not pick them well, mathematically that is kind of actually what you're trying to do in effect. But then the problem becomes this: how much due diligence did you put into analyzing those losers? How do you know that those companies going to be losing versus the market when the majority of the market you've picked will be doing better as i'm recording this huntington? Ingalls industries is in the s p 500, as is holly frontier corporation. When was the last time that you went and looked at their financials and built a model to assess those companies back to the point, you also don't want to have a very small number of companies.

You really have to hold at least three mathematically so that if one of those three doesn't do well, then the majority still would and therefore on average, even if one of your picks doesn't do well, then your portfolio will do all right, and that's assuming that all Your picks are the same size and you hold equally weighted positions in them. The really critical point within picking stocks is the first one that i mentioned. You need to be able to pick the winners from the losers and, if you are going to do that with any kind of consistency, you have to be able to evaluate the companies that you think may be the winners. You have to build a model or have another robust mathematical way of assessing what you feel a fair price for the stock should be, and then, if the current price is much lower than that target price, you would buy the stock and if the current price was Close to or higher, then you wouldn't, because it wouldn't make any sense if you're investing without making an assessment on what a fair price is.

You're, not investing you're, just gambling if you're investing in tesla is 700 a good price. What if the price was 7 000? Is that still a good buy? Where is the line for you, where a good price becomes a bad price? If you don't know the answer to that question for a stock that you're investing in, then you haven't done your homework anyway. If you're going to do a proper assessment on a company, it's going to take you time. You have to do your due diligence.

You have to research, the company you have to read about them. You have to get into a lot of depth as much as possible to really understand what that company does and how they do it so that you can then go and make a real, proper stab at forecasting their future performance as accurately as you possibly can, and Then you'll go and build a model and produce your target price. How many companies can you do that process properly for remember the age or tip that you need to do your own research? I say that enough. Well, it's not just a meaningless saying.

You really do! Need to do your own research if you're trusting somebody else's word without doing your homework without doing a due diligence, you risk investing in hype, and so this is a realistic limiting factor for most investors. A lot of companies you assess will not be good. Investing opportunities at the end of your assessment, so you won't be putting your money in them. Some of them will and you will invest in them, but then you have to stay on top of your assessments when new results are published or new information comes up or there's some kind of news about the company that might change your target price.

You need to go back and redo your calculations and, if you're planning on monitoring all of these companies closely and redoing all of those valuations and doing whatever it is that you do in life like your job other than investing every quarter, you might find that you Easily run out of time, so my personal take on it is this. I want to be specific enough that i am targeting and trying to pick the winners. There is no point in picking a company that delivers a 9 return per year, because the market on average will return that nine percent per year, as we discussed earlier, if you're picking companies you're trying to beat the market. If you are happy with getting nine percent return per year, you may well just go and invest in the market because that's the average return you're going to get and you don't have to spend any time you don't have to do any kind of thinking or research.

So, if you're trying to go and beat the market, because that's the only reason why you'd be investing specific stocks, you're trying to target companies where you feel there's a significant upside on the nine percent so that you can justify investing in them versus the s. P. 500, for example, you're taking on a greater amount of risk. So naturally your objective is to get a higher rate of return for that level of risk.

So realistically, you'll want to be targeting companies where the math says that the share price, maybe should go up by 15 or 20 percent per year and realistically, in an average year that isn't 2020, not too many companies will be hitting those sorts of numbers and given The constraint in time i personally aim for about 15 to 20 companies in my portfolio. Now i will have more investments than that, because sometimes you have a tiny amount invested in something from the past that you don't want to get rid of, or some other reasons, but over 95 of my money will be sitting in those 15 to 20. Companies. Do remember, though, that this is something that works for me and it may well not work for you at all, make sure that you think about what a good investment strategy for you looks like and don't just copy somebody on youtube.

Hopefully, this video can stimulate some points for you to think about. If you like this video, please don't forget to hit the like button for youtube algorithm. Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later,.