Key insights
- The post discusses the optimal number of stocks for a 5-year investment portfolio, highlighting the risk of over-diversification. While the author believes 40 stocks will outperform the Nasdaq, studies suggest a smaller number may yield better returns. This implies a potential drag on portfolio performance due to excessive diversification, creating a slightly bearish signal for individual stock selection.
For a 5-year investment portfolio, I've identified 40 stocks that I believe have a very bright future based on my research, and I plan to buy them using the dollar cost averaging (DCA) method. Let's say, in the best-case scenario, I expect each of these stocks to outperform the Nasdaq in terms of compound annual growth rate (CAGR) over the next five years. Scientific studies indicate that I'm "over-diversifying." In your opinion, what is the theoretical maximum number of stocks we should hold to achieve the best return?