The Indian stock market has witnessed significant volatility and contrasting moves by different investor groups recently. While foreign institutional investors (FIIs) sold shares worth almost ₹1.44 lakh crore from January to July 2024, domestic institutional investors (DIIs) offset this by buying shares in excess of about ₹2.88 lakh crore during the same period, according to data from National Securities Depository Limited (NSDL). The aggressive demand by the DIIs pulled up the Nifty 50 TRI (Total Return Index) by 22.23 per cent.
With markets at such high levels, many investors may want to increase their exposure to equities due to the fear of missing out. But, given the inherent unpredictability in determining a stock's value, the future might not always unfold as expected. One of the beacons of hope in this scenario is diversification, a fundamental strategy for building a stock portfolio. By spreading investments across various stocks, it minimises the impact of poor performance in any single company's shares.
Investing into multiple securities can reduce the risks; and signiiicantly enhance the chances of investment success. However, it is also important to consider how many stocks one should own in a portfolio to be able to balance risk and reward, especially in a market that has already moved up so fast.
The ideal number of stocks in a portfolio is a topic of debate among experts. For instance, in the article 1716 Superinvestors of Graham-and-Doddsville, Warren Buffett mentioned how American investor Walter J. Schloss owned over 100 stocks. Closer home, the White Oak Flexi Cap Fund holds 118 stocks as of its July disclosure. Elsewhere, Motilal Oswal Flexi Cap Fund in India, holds just 22 stocks, which is a concentrated portfolio.
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