process
Hold Only What You Can Follow
The rule
Own only as many stocks as you can truly study and keep up with. Let your attention set the number, not a spreading-out rule.
Where it flips
Holding too few cuts both ways. Too few names, or all of them in one sector you happen to follow, leaves you badly exposed if that story fails. The fix is to keep the number small enough to follow, but still spread across unrelated businesses. Then attention and safety both hold.
Spreading out just for its own sake, buying twenty names because a rule says so, thins your attention until you know none of them well. The right number is however many stories you can actually track. Read the results, follow the business, notice when the reason to own it breaks. For a working person that might be five or eight. Owning more than you can follow is 'di-worse-ification' - extra names add risk without adding understanding. A few well-understood companies beat a long list you cannot keep up with.
A worked example
Aarohi cut her portfolio from 22 half-forgotten names to 7 she could truly follow each quarter. She caught a warning sign early in one and sold in time. The long list would have buried that signal. [illustrative]
How to spot it
- ·you can recall the story for every stock you own
- ·you actually read each company's quarterly results
- ·the count is set by your time, not a target number
Peter Lynch · One Up on Wall Street