How many stocks should you hold in a portfolio?
2026-07-09 · By Lubin Danilo, founder of Lubin Investment
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Financial research (Evans and Archer, 1968) shows that around ten stocks is enough to remove most of the risk specific to any single company, even though more recent studies suggest 20 to 40 names for maximum effect. The real question is not a magic number, but the quality and independence of the positions you choose.
Every stock picker's dilemma
As soon as you start picking stocks one by one instead of buying an index fund, one question keeps coming back: how many positions should you hold? Too few, and a single bad surprise, an accounting scandal, a failed product, a disappointing executive, can wipe out a large chunk of the portfolio. Too many, and you end up managing what feels like a full time job for a result that ends up looking like an index, with more effort and often higher costs.
What academic research says
The foundational study on this topic dates back to 1968: Evans and Archer showed that around ten stocks already removed most of the risk specific to each individual company, as measured by the standard deviation of portfolio returns. That figure of 10 became a kind of popular rule of thumb in the financial literature.
More recent work has nuanced that result. Several studies estimate that 20 to 40 stocks, or even more depending on the calculation method and time period studied, are needed to capture most of the diversification effect. The honest conclusion is that there is no single number everyone agrees on. What consistently holds true, though, is that beyond roughly fifty positions, each additional stock adds almost no further risk reduction, while continuing to dilute the impact of your best ideas.
The real risk diversification reduces
Two types of risk need to be distinguished. Company specific risk (a competitor overtaking it, a scandal breaking out, a flagship product failing) can be reduced, even nearly eliminated, by holding several companies whose problems are not correlated with each other. That is what diversification addresses. Market wide risk (a recession, a sharp rate hike, a broad financial crisis) hits nearly all stocks at once, and no number of positions truly protects you from it. Diversifying reduces the risk of losing big on one individual accident, not the risk of living through a bad year for stocks overall.
Why the number alone is not enough
Holding 20 stocks does nothing for you if they are all in the same sector, exposed to the same economic cycles and the same regulatory risks. My own screener covers dozens of different sectors, from insurance to logistics, semiconductors and commercial real estate, precisely because real diversification comes from the independence of risk sources, not just the number of positions. Twenty regional US banks diversify far less than a portfolio of ten companies spread across ten unrelated sectors.
How I approach the question with my method
My screener scores more than 5,000 stocks on the same 10 criteria, which can tempt you to accumulate dozens of names scoring 10 out of 10. I resist that temptation. A position I do not truly understand, one whose moat or main risk I could not explain in a single sentence, does not add useful diversification: it just adds complexity I do not control. I would rather hold fewer positions that I know in depth than a large number followed superficially.
In practice, I aim for a range of 15 to 25 positions, spread across sectors that do not all react the same way to the same economic news. Below 15, a single individual accident weighs too heavily on the whole. Above 25, I start losing the ability to truly know each company I hold, which, in my view, is a risk at least as large as poor diversification.
| Number of positions | Advantage | Drawback |
|---|---|---|
| Under 10 | Concentration on your best ideas | One accident can hurt badly |
| 15 to 25 (my range) | Diversified without losing control | Requires genuinely following each name |
| Over 50 | Company specific risk nearly eliminated | Dilutes your best ideas, starts to look like an index |
My personal rule
I am not looking for a magic number, I am looking for a balance: enough positions that one isolated company problem does not ruin my portfolio, few enough that I can explain, for each one, why I hold it and what would make me doubt it. Helping investors judge each name seriously, quality first, price second, is exactly why I built my investment site. If you want to dig into the full method behind each score, my full methodology details the 10 criteria, and my ranking of companies scoring 10 out of 10 gives you a starting point to build a diversified portfolio without sacrificing quality.
- The foundational Evans and Archer study (1968) shows that around ten stocks removes most of the risk specific to any single company.
- More recent research suggests 20 to 40 positions for maximum diversification effect.
- Diversification reduces company specific risk, not overall market risk (recessions, financial crises).
- The number alone is not enough: 20 stocks in the same sector diversify far less than 10 stocks spread across unrelated sectors.
- My personal range: 15 to 25 positions, spread across independent sectors, each understood well enough to explain its main risk.
FAQ
How many stocks should you really hold?
There is no magic number every researcher agrees on. The foundational Evans and Archer study (1968) points to around ten stocks, more recent research suggests 20 to 40. Personally, I aim for 15 to 25 positions spread across independent sectors.
Does diversification protect against a broad market crash?
No. Diversification reduces company specific risk (a scandal, a product failure), but it does not protect against broad market risk like a recession or a financial crisis, which hits nearly all stocks at once.
Is holding 20 stocks in the same sector diversified enough?
No. Real diversification comes from the independence of risks, not just the number of positions. Twenty stocks exposed to the same economic cycles and regulatory risks diversify far less than a smaller number of companies spread across unrelated sectors.
Why not just hold 50 stocks to maximize diversification?
Beyond roughly fifty positions, each additional stock adds very little extra risk reduction, while diluting the impact of your best ideas and making it much harder to genuinely follow each name.
How do I know if my portfolio is too concentrated?
If a single problem at one company, fraud, a lawsuit, a failed product, could knock more than a few percent off your total portfolio, that is a sign of excessive concentration in that position.
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About the author
Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).