How many different stocks should I be trading?

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How many different stocks should I be trading?

posted

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

James Christopher

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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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.