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How Many Stocks Should I Own in My Portfolio?
Neil Wilson
Investor Content Strategist
Summary: This article looks at the basics of portfolio management - how many stocks should you own?
Note: This is marketing material. This article is not investment advice, capital is at risk.
Answer: unfortunately there is no magic number. But the academic research and real-world portfolio management examples should help shine a light on the ballpark numbers for most investors.
This article is not intended to go into complex portfolio management theory – it's just a rough rule of thumb for the number of stocks to consider owning. With markets volatile and economic policy more uncertain than ever in 2025, diversification is more important than ever.
1. Modern Portfolio Theory (MPT): Around 20–30 Stocks
Origin: Harry Markowitz, 1952
Core Idea: Diversification reduces unsystematic (stock-specific) risk, but only up to a point.
Optimal Range: Studies suggest that holding 20 to 30 stocks from different industries captures most diversification benefits.
Example: A portfolio of 25 well-diversified stocks can eliminate about 90% of unsystematic risk, according to empirical research.
2. Buffett’s Focused Portfolio Approach: 10–15 Stocks
Origin: Warren Buffett and Charlie Munger
Core Idea: “Put all your eggs in a few baskets, and watch those baskets carefully.”
Optimal Range: 10–15 carefully selected stocks where the investor has high conviction and understanding.
Rationale: Better returns can be generated by concentrating on a few exceptional businesses rather than over-diversifying and diluting performance.
Example: Lindsell Train Investment Trust
3. Passive Index Replication: 100-500+ Stocks (Sharpe 1964)
Example: S&P 500 or FTSE 100 Index Fund
Core Idea: Own the entire market to eliminate stock-picking risk and minimize volatility. It’s based on the 1964 work by William Sharpe who introduced the concept of the market portfolio as the optimal portfolio for investors. This portfolio, according to Sharpe, is composed of all risky assets, weighted by their market capitalization.
Stock Count: Index funds may hold hundreds or even thousands of stocks.
Rationale: This approach prioritizes market beta over alpha, that is lower volatility but at the potential expense of lower returns, betting on long-term growth of the overall economy.
Example: For full global diversification the Vanguard FTSE Global RET
4. Joel Greenblatt’s Magic Formula: ~20–30 Stocks
Origin: “The Little Book That Beats the Market”
Core Idea: Use a systematic value-investing strategy to select the top-ranked 20–30 stocks based on return on capital and earnings yield.
Rationale: Empirical evidence shows that a diversified portfolio of top-ranked value stocks outperforms the market over time, but still requires a reasonable spread to reduce individual company risk. Stay tuned as we’ll be going into this approach in a forthcoming series on great investing ideas.
5. Academic Evidence from Statman (1987): 30–40 Stocks
Origin: Meir Statman, Journal of Portfolio Management
Core Idea: Expands on MPT with real-world constraints like correlation and sector exposure.
Optimal Range: Around 30–40 stocks to effectively reduce risk under typical market conditions.
Rationale: Beyond this point, the marginal benefit of adding more stocks drops sharply.
6. Academic Evidence from Evans and Archer (1968): About 10 Stocks
Origin: John L. Evans and Stephen H. Archer, Diversification and the Reduction of Dispersion: An Empirical Analysis
Core Idea: Look at how returns vary as a function of the number of stocks in a portfolio – essentially how portfolio size affects portfolio risk
Optimal Range: about 10, no more than 15
Rationale: The research found that risk ceases to decrease beyond 15 stocks
Bottom Line & Key Takeaways
We’re not trying to suggest any one approach works better than others, but just to point out that diversification underpins a lot of the principles for portfolio management
How you approach this is personal but even the narrower portfolios suggest at least 10 stocks
Diversification does not require active management – there are plenty of ETFs and Funds to invest in that deliver this without you needing to regularly update positions.
Stay tuned for more - in our next piece on this theme we'll be going into some real-world funds and ETFs that use some of these strategies.
Answer: unfortunately there is no magic number. But the academic research and real-world portfolio management examples should help shine a light on the ballpark numbers for most investors.
This article is not intended to go into complex portfolio management theory – it's just a rough rule of thumb for the number of stocks to consider owning. With markets volatile and economic policy more uncertain than ever in 2025, diversification is more important than ever.
1. Modern Portfolio Theory (MPT): Around 20–30 Stocks
Origin: Harry Markowitz, 1952
Core Idea: Diversification reduces unsystematic (stock-specific) risk, but only up to a point.
Optimal Range: Studies suggest that holding 20 to 30 stocks from different industries captures most diversification benefits.
Example: A portfolio of 25 well-diversified stocks can eliminate about 90% of unsystematic risk, according to empirical research.
2. Buffett’s Focused Portfolio Approach: 10–15 Stocks
Origin: Warren Buffett and Charlie Munger
Core Idea: “Put all your eggs in a few baskets, and watch those baskets carefully.”
Optimal Range: 10–15 carefully selected stocks where the investor has high conviction and understanding.
Rationale: Better returns can be generated by concentrating on a few exceptional businesses rather than over-diversifying and diluting performance.
Example: Lindsell Train Investment Trust
3. Passive Index Replication: 100-500+ Stocks (Sharpe 1964)
Example: S&P 500 or FTSE 100 Index Fund
Core Idea: Own the entire market to eliminate stock-picking risk and minimize volatility. It’s based on the 1964 work by William Sharpe who introduced the concept of the market portfolio as the optimal portfolio for investors. This portfolio, according to Sharpe, is composed of all risky assets, weighted by their market capitalization.
Stock Count: Index funds may hold hundreds or even thousands of stocks.
Rationale: This approach prioritizes market beta over alpha, that is lower volatility but at the potential expense of lower returns, betting on long-term growth of the overall economy.
Example: For full global diversification the Vanguard FTSE Global RET
4. Joel Greenblatt’s Magic Formula: ~20–30 Stocks
Origin: “The Little Book That Beats the Market”
Core Idea: Use a systematic value-investing strategy to select the top-ranked 20–30 stocks based on return on capital and earnings yield.
Rationale: Empirical evidence shows that a diversified portfolio of top-ranked value stocks outperforms the market over time, but still requires a reasonable spread to reduce individual company risk. Stay tuned as we’ll be going into this approach in a forthcoming series on great investing ideas.
5. Academic Evidence from Statman (1987): 30–40 Stocks
Origin: Meir Statman, Journal of Portfolio Management
Core Idea: Expands on MPT with real-world constraints like correlation and sector exposure.
Optimal Range: Around 30–40 stocks to effectively reduce risk under typical market conditions.
Rationale: Beyond this point, the marginal benefit of adding more stocks drops sharply.
6. Academic Evidence from Evans and Archer (1968): About 10 Stocks
Origin: John L. Evans and Stephen H. Archer, Diversification and the Reduction of Dispersion: An Empirical Analysis
Core Idea: Look at how returns vary as a function of the number of stocks in a portfolio – essentially how portfolio size affects portfolio risk
Optimal Range: about 10, no more than 15
Rationale: The research found that risk ceases to decrease beyond 15 stocks
Bottom Line & Key Takeaways
We’re not trying to suggest any one approach works better than others, but just to point out that diversification underpins a lot of the principles for portfolio management
How you approach this is personal but even the narrower portfolios suggest at least 10 stocks
Diversification does not require active management – there are plenty of ETFs and Funds to invest in that deliver this without you needing to regularly update positions.
Stay tuned for more - in our next piece on this theme we'll be going into some real-world funds and ETFs that use some of these strategies.