Diversification and number of lines?

[florent522]

Good morning,

I would like to know how best to diversify, I currently have 8 lines spread over 6 different sectors. How many lines is it recommended to have? Should I also invest in non-US stocks?

Thanks for your help 🙂

[Jerome]

Hi Florent
This is the eternal question between supporters of diversification and those of concentration.
In theory, the more you diversify, the less risk you have, but the more likely you are to match the market's performance. Some people therefore prefer to bet on only a few good horses, hoping to substantially beat the market.
I don't really agree with this approach. The most important thing is the performance/risk ratio.
There is no point in beating the market if you are going to take reckless risks.
In my portfolio I have 39 positions today. The largest represents less than 6% of the value of the whole. The securities are chosen in particular for their low volatility. My algorithm has a winners ratio of 75%. There are therefore a few losing positions, including one of nearly 50%, but in the end this only represents 1.3% of the value of the portfolio.
If I had focused on just a few stocks, even if the algorithm is efficient, I would have taken the risk of falling into a losing position that would have had much more impact on the entire portfolio.
And in the end, you can still beat the market, even with a well-stocked portfolio. You just need the strategy to be right.
8 positions / 6 sectors is already becoming interesting, it limits the risks a little, but you can also aim for more.
Regarding US securities, yes, it is also necessary to do so, in particular to reduce the exchange rate risk. See:

Foreign currency actions and currency risk (1/4)

[florent522]

Thanks for your help 🙂

[Author]

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