Joys Of Compounding: The Passionate Pursuit of Lifelong Learning

by Gautam Baid

because the benefits of diversification start diminishing beyond a certain point. Statistical analysis shows that security-specific risk is adequately diversified after fourteen names in different industries, and the incremental benefit of each additional holding is negligible. —Mason Hawkins Two things should be remembered, after purchasing six or eight stocks in different industries, the benefit of adding even more stocks to your portfolio in an effort to decrease risk is small, and overall market risk will not be eliminated merely by adding more stocks to your portfolio. —Joel Greenblatt I decided to run a concentrated portfolio. As Joel Greenblatt pointed out, holding eight stocks eliminates 81 percent of the risk in owning just one stock, and holding thirty-two stocks eliminates 96 percent of the risk. This insight struck me as incredibly important. —David Einhorn