How much stock should one own?

Question

My brother has a few hundred thousand dollars tied up in the stock market. He owns thousands of shares in various companies. I only have $5,000 invested in a few different companies. I own about 10 to 20 shares in each company. He says owning 10 or 20 shares of a company will never make me money. That I should be buying, like he does, several hundred shares in each company. Since I don't have the kind of money he has I can't do that. So is his statement true or is he just rubbing it in that he has the money?

Answer 1

This is a greatly debated question: to diversify greatly or moderately or not at all?

Diversification in a world bear market doesn't make much sense to me. All of the boats rise or fall on the tide. By docking the ship, you can remain stable. Switching to treasuries or cd's may be the biggest money maker of our time, although right now the bear market has lost steam and is overdue for a rally.

If you are to diversify, it has been studied and shown that 7 or 8 stocks are all that are needed to diversify. This would not be 7 technology stocks, or 8 solar stocks but you get the idea.

Either way, your percentage gains should be similar to your brothers, regardless if you are diversified, in a bear market.

Diversification to me means to put some of your money in commodities, some in treasuries for easy access, maybe some in real estate, etc., anywhere other than stocks. Or short something, like the real estate etf's or the financials or oil. If you are simply long stock, you are not diversified from systemic risk of the market.

Answer 2

You can make more money if you invest more, but you could also lose more money. I think he's just rubbing it in.

Answer 3

Your brother is wrong. Adjusted for risk, you can't consistently beat the market. What your brother is doing is taking increased risk by concentrating ownership rather than diversifying it. It is true that by doing so he will have a chance to realize greater gains -- or losses -- than the market averages. What you should do is buy an ETF that mirrors one of the broader averages -- like the S&P or the Russell 1000 or 2000. The Vanguard ETFs are the most attractive because they charge slightly lower fees, but there are others as well.