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How many different stocks should I be trading?

We currently get to perform data analysis on 500 stocks, and this amount will (hopefully) increase in the future.

Once I have performed my analysis and ranked my purchases, how many stocks should I trade? I know that this question depends on a few variables, including how much money is in the trading account, how much commissions are, and how often I am trading.

With the contest default account size and commissions, how many stocks should I select if I am trading once a day? Is there a good rule of thumb? I want to diversify my account to reduce non-market risk, but I also don't want transaction costs to dilute my returns.

Thanks!

Tristan

1 response

That is a tough question to answer as there really isn't one. If you are a great stock picker you don't need to diversify at all, I think Warren Buffet said something along those lines. Another thing to note is that even holding a thousand stocks isn't diversified if they are all extremely correlated.

A quick google search yielded a few links that talk about this

http://www.fool.com/investing/general/2012/07/09/how-many-stocks-should-you-own.aspx

http://www.investopedia.com/ask/answers/05/optimalportfoliosize.asp

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