How Many Stocks Should Be In Your Portfolio?

How Many Stocks Should Be In Your Portfolio? 
How many stocks should you really own?The real answer might surprise you. In this databacked special report, Abhishek Wani uncovers why owning over 30 stocks might be hurting, not helping, your returns. Using real portfolio simulations and timeless investing wisdom, he explains the sweet spot for retail investors and how smart diversification, not blind accumulation, leads to wealth creation. If your demat looks like a mutual fund, it’s time to declutter 

As retail investors, we often find ourselves overwhelmed when building our stock portfolios. The moment we look for investing in stocks, we are bombarded with stock tips from TV experts, friends, WhatsApp forwards, and even finance magazines like ours. Without a clear strategy, we start adding one stock after another, thinking we're building wealth. But, here's the truth: simply accumulating stocks doesn’t automatically mean you're building a strong portfolio. 

At some point, your portfolio starts to look more like a cluttered cabinet than a carefully curated collection. That’s when the confusion sets in: how many stocks should I actually own? 

To explore this question, we recently ran a poll on our social media handle asking our community: 

‘How many stocks do you currently own in your portfolio?’ Here’s what the poll revealed:
■ 12 per cent of investors hold up to 5 stocks
■ 30 per cent own between 5 and 15 stocks
■ 23 per cent hold between 16 and 30 stocks
■ A surprising 35 per cent said they own more than 30 stocks 

This result led us to dig deeper. Why do so many people end up with over 30 stocks? Is that helping or hurting their returns? Does diversification always mean safety? Or is there such a thing as too much diversification? 

There’s no universal rule for how much of your portfolio should be in stocks or how many stocks you should hold. It really comes down to how much time and effort you can spend researching and tracking them. Legendary investors like Warren Buffett and Charlie Munger have often advocated for a concentrated portfolio owning fewer, high-conviction stocks. On the flip side, thinkers like Benjamin Graham supported holding a broader range of stocks to minimise individual risks. 

Most retail investors have heard of diversification, thanks to the widely-quoted Modern Portfolio Theory (MPT) by Harry Markowitz. It says diversification reduces risk which is true, but only to a point. The problem is, many investors have only heard half the story. They believe that the more stocks they own across sectors, the safer they are. This is why over 35 per cent of our poll participants reported owning more than 30 stocks. 

But, here’s the catch: after a certain point, owning more stocks doesn’t reduce risk, it just reduces your ability to generate meaningful returns. In fact, beyond 20-25 stocks, the diversification benefit flattens out, and what you're left with is something that behaves like an index fund without the simplicity or low cost of one. 

On the other hand, owning just 4-5 stocks may make you feel bold and bullish, but if even one of them underperforms, your entire portfolio takes a hit. That’s called concentration risk and unless you’ve done deep research and have high conviction in those companies, you’re exposing yourself to unnecessary volatility. 

So, what’s the right balance? In this story, we aim to guide you through the principles of portfolio construction using real data, investing wisdom, and practical thinking. We’ll show you how many stocks an average investor should ideally hold based on: 

■ Risk Returns
■ Diversification
■ Volatility
■ Real-life manageability 

Because in investing, it’s not about owning more, it’s about owning right. This special report breaks it down for you in simple language. We combine theory, data, and practical insight to answer the age-old investor question: ‘How many stocks should I really have in my portfolio?’ 

What Our Dummy Portfolios Revealed: The Power and Limits of Diversification 

To understand the real-world impact of portfolio size, we built four hypothetical portfolios each with a different number of stocks and sectors. The goal was to test whether adding more stocks always leads to better performance, lower risk, or both. 

We named the portfolios P1, P2, P3, and P4, each holding 5, 15, 25, and 35 stocks respectively. Stocks were selected across various sectors, and each was assigned equal weight in the portfolio. 

All portfolios included a mix of known companies across banking, IT, FMCG, auto, pharma, infra, new-age tech, and more. From HDFC Bank, Infosys, M&M, Sun Pharma, to Nazara, IRCTC, and One 97 Communications, we wanted a mix of both blue-chip and high-growth sector stocks to mirror what an average investor might do. 

Key Findings from Our Portfolio Analysis 

We evaluated the portfolios using several key performance metrics: returns, risk (standard deviation), Sharpe ratio, diversification, and maximum drawdown (which measures the worst peak-to-trough loss). 

Understanding the Key Metrics: What the Data Really Tells Us 

While the number of stocks in a portfolio is the heart of this discussion, it’s the supporting metrics that give us the full picture telling us not just how a portfolio performed, but why it performed that way. Let’s break down the core parameters and what they mean for you as an investor. 

Diversification: Balance, Not Bulk 

The Diversification Ratio (DR) is a metric that compares the weighted average volatility of individual stocks to the actual volatility of the portfolio. It answers a crucial question: How much risk are you reducing by holding multiple stocks together? 

■  A higher DR indicates that the stocks are less correlated meaning they don’t all move together. This is true diversification.
■  A lower DR suggests that the stocks behave similarly, reducing the risk-reduction benefit of diversification. 

Let’s look at the data from the portfolios: 

■ P2 (15 stocks) showed the best diversification (DR: 9.60), combining low correlation with low portfolio volatility.
■ P3 (25 stocks) was moderately diversified, though slightly impacted by overlapping sectors.
■ P4 (35 stocks) had a lower DR, showing that adding more stocks doesn't always increase diversification especially if they are similar.
■ P1 (5 stocks) had the least diversification benefit, reflecting high concentration risk. 

Takeaway: Effective diversification isn’t about how many stocks you hold, but how different they are from each other. 

Portfolio Return: The Bigger Isn’t Always Better Trap Naturally, we want high returns but only if they're sustainable and not the result of excessive risk.

■ Returns jumped from 17.71 per cent in P1 (5 stocks) to 41.66 per cent in P3 (25 stocks) showing the value of thoughtful diversification.
■ But surprisingly, P4 (35 stocks) saw a drop in return to 26.22 per cent. Why? Because too many stocks dilute your winners. 

Lesson: Don’t hoard stocks. Focus on fewer high-conviction names that can move the needle. 

Standard Deviation (Volatility): How Much Can You Stomach? 

Volatility is the up-and-down movement in your portfolio. Too much of it, and you may lose sleep (or worse, sell in panic).

■ P2 (15 stocks) had the lowest volatility at just 2.46 per cent incredibly stable for the kind of returns it delivered.
■ Volatility increased in P3 and P4, due to sector overlap and reduced stock-level quality. 

Lesson: Don’t just chase returns. A calm portfolio is often a profitable portfolio. 

Sharpe Ratio: Are You Earning Enough for the Risk You’re Taking? 

The Sharpe ratio measures risk-adjusted returns: in simple terms, how efficiently your portfolio converts risk into reward.

■ P2’s Sharpe Ratio (6.36) is outstanding - it means you’re getting a lot of return for very little risk.
■ P3 (5.62) was also strong. But, P4’s Sharpe (1.86) highlights poor efficiency - you're taking on risk without enough return in exchange. 

Lesson: Look beyond just returns. Ask, ‘Is my portfolio working hard enough for the risk I’m taking?’ 

Max. Drawdown: The Real Test Comes in a Crash
Drawdown tells you the worst drop your portfolio experienced. This is crucial during market crashes or black swan events.

■ P3 (25 stocks) had the lowest drawdown at 5.54 per cent a sign of strong downside protection.
■ P2, despite its stellar Sharpe, had the highest drawdown (21.47 per cent) meaning it may fall hard in a downturn.
■ P1 and P4 had moderate drawdowns, but weren’t as efficient overall. 

Lesson: A well-diversified portfolio doesn’t just aim for gains it must hold its ground during rough patches. 

The Law of Diminishing Marginal Utility in Portfolio Construction 

Our study uncovered something fascinating and highly relevant for everyday investors:

■ From 5 to 15 stocks, the benefits are huge: better returns, lower risk, and better stability.
■ From 15 to 25 stocks, the gains are still there, but smaller.
■ From 25 to 35 stocks, the benefits reverse returns fall, risk rises, and managing the portfolio becomes a chore. 

Lesson: Think of stocks in your portfolio like ingredients in a recipe. Add too few, and the dish lacks flavour. Add too many, and you ruin the balance. 

So, What’s the Ideal Portfolio Size?
Let’s now summarise it clearly:

■ 15 stocks (like P2) gave the best risk-adjusted performance. Ideal if you want stability and can track a mid-sized portfolio closely.
■ 25 stocks (like P3) gave the best absolute return and lowest drawdown - great if you prefer extra safety and better downside protection.
■ Going beyond 30–35 stocks? That’s where the trouble begins - returns decline, complexity rises, and decision fatigue sets in. 

A focused, well-researched portfolio of 15–25 stocks offers the best combination of return, stability, and simplicity. Beyond that, the benefits fade and the burden grows. 

What the Investment Legends Say: How Many Stocks Should You Own? 

When it comes to deciding how many stocks to own, there is no universal answer but legendary investors offer timeless principles that can guide retail investors. 

While data and statistics give us precision, real-world investing wisdom often comes from those who’ve walked the talk - investors who’ve built fortunes not by owning hundreds of names, but by knowing what they own and why. These investing greats offer philosophies that go beyond numbers they speak to conviction, understanding, temperament, and simplicity. 

Let’s explore what these legends say and what it means for your portfolio. 

Warren Buffett advocates for owning a few high-quality businesses you deeply understand, famously stating that ‘diversification is protection against ignorance.’ His company, Berkshire Hathaway, reflects this conviction, with over 40 per cent of its portfolio in Apple alone. 

Similarly, Charlie Munger calls excessive diversification ‘madness,’ favouring a handful of great ideas backed by deep research. Both stress that unless you truly understand a company, it’s better to own fewer names with conviction or diversify through mutual funds. 

On the other end of the spectrum, John Bogle, the father of index investing, urges investors to ‘own the haystack, not search for the needle.’ He discouraged stock picking altogether, promoting low-cost index funds that offer automatic diversification across thousands of companies. Peter Lynch strikes a balance - he managed a diversified portfolio but advised individual investors to own only 10–20 companies they understand well, likening stock ownership to raising children: manageable only in limited numbers. Benjamin Graham, the father of value investing, also supported diversification, recommending investors hold 10 to 30 stocks, each purchased with a margin of safety to guard against mistakes. 

Other voices echo similar themes. Joel Greenblatt prefers 20–30 high-quality stocks for disciplined investors, while Howard Marks emphasises risk management and suggests adequate diversification for capital preservation. Closer to home, Rakesh Jhunjhunwala built massive wealth through concentrated bets based on thorough research. The underlying message is clear: it’s the time you have to evaluate businesses in depth, broad diversification that should decide how many stocks should be in your portfolio. But, if you can do the work and think long term, a concentrated portfolio of 15–25 well-researched stocks can create meaningful wealth. 

Conclusion & Guidance: What Retail Investors Should Do Now 

After diving deep into data, investor behaviour, and timeless investing principles, one thing is crystal clear: owning more stocks doesn’t automatically make you a better investor it just makes your portfolio harder to manage. 

The insights from our portfolio experiment show that the sweet spot for most retail investors lies in holding 15 to 25 wellresearched, sector-diverse stocks. This range offers the best combination of: 

■ Meaningful returns
■ Controlled volatility
■ Solid downside protection
■ And, most importantly, realistic manageability 

Beyond 30–35 stocks, the benefits of diversification don’t just flatten, they decline. You take on more effort but get fewer rewards. At that point, your portfolio begins to mimic an index fund minus the low cost, simplicity, and discipline. Don’t try to be a mutual fund in your demat account. 

Your Action Plan: 

■ Take Stock of Your Portfolio: Count how many companies you currently own. If it's more than 25–30, ask yourself - do I really understand all of them?
■ Cut the Clutter: Exit low-conviction names. Free up mental bandwidth to focus on companies you truly believe in and can monitor.
■ Diversify Smartly: Aim for exposure across 10–12 sectors but avoid overlapping businesses that move in sync.
■ Track Regularly, Not Obsessively: A leaner portfolio is easier to monitor. Make quarterly reviews a habit, not a burden.
■ Prioritise Quality & Conviction: Whether you hold 15 or 25 stocks, ensure each one earns its place. Don’t hold anything you wouldn’t confidently explain to a friend. 

If you don’t have the time, interest, or emotional discipline to track individual stocks, that’s okay too. 

Final Word
“In investing, clarity beats clutter. And conviction beats collection.” 

The next time you feel tempted to add ‘just one more stock’, pause. Revisit your investment goals. And ask yourself: Will this stock make a real difference, or am I just adding noise? Because the most successful portfolios aren’t built by owning everything, they’re built by owning wisely.