While many sources have an opinion about the “right” number of stocks to own, there really is no correct answer to this question.
The average “diversified” portfolio typically holds between 20 – 30 stocks. The key word is diversified. 20 – 30 stocks make the most sense IF you use them to diversify.
As a Trend Follower, you’re already working to protect your portfolio with well placed “stop loss orders”.
Adding diversification is a great idea. Make sure it includes a good mix of Sectors. Don’t put all of your eggs (or valuable dollars!) in one basket. Diversification constitutes another level of risk management.
Keep in mind, diversification helps to protect your portfolio against the risk associated with a particular company or industry.
The average investor is not able to diversify away systemic risk, such as the risk of an economic recession or Black Swan event that drags down the entire market.
Trend Followers do not like to ride the market down.
Fortunately, Stop Loss Orders do help you manage the downside and can provide a level of protection from systemic risk.
You may take some small losses, but you’ll be sitting on the sidelines, with most of your portfolio in cash waiting & watching to pick up some good buys as market turns favorable!
That is why you Cut Your Losses and Ride Your Winners!!
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