The Fewer the Stocks, the Better

April 2005
Journal of Financial Planning;Apr2005, Vol. 18 Issue 4, p18
Academic Journal
The article reports that investors in individual stocks, particularly wealthier investors, has done better concentrating only on one or two stocks instead of diversifying into three or more stocks, according to researchers at the University of Michigan and the University of Illinois. The found that wealth investors with concentrated stock portfolios are significantly better stock pickers than their more diversified counterparts. Investors with portfolios of $100,000 or more outperformed their more diversified counterparts by four percent. The study also found that investors did better when sticking to local stocks or avoiding stocks in the Standard & Poor's 500. The main reason for the success of the concentrated portfolios is that the investors are able to exploit their knowledge about the stocks in which they invested, concluded the researchers, who analyzed over one million stock trades from 1990 to 1991.


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