No matter how good you are with your TA or FA or both. You still must at all times protect your portfolio against Black Swan event that may happen and causing big losses to the portfolio. It is lot harder to recover from big losses in the portfolio.
In Joel Greenblatt's brilliant book, "You Can Be a Stock Market Genius", he provides the following statistics by owning the following number of stocks:
- 2 stocks eliminates 46% of non-market risk of just owning one stock
- 4 stocks eliminates 72% of the risk
- 8 stocks eliminates 81% of the risk
- 16 stocks eliminates 93% of the risk
- 32 stocks eliminates 96% of the risk
- 500 stocks eliminates 99% of the risk
My risk management rule is based on Investing Capital and not at Portfolio level so that the risk exposure is actually quite consistent and independent of the stock market conditions.
I will keep my risk exposure to not more than 5% of Investing Capital for any single stock and not more than 10% to a sector. For long-term holding for capital appreciation and dividend income, I would like to take back my investing capital ASAP and only leaving behind the profits to ride with the stock market i.e. Pillow Stocks Investing strategy.
"Think of Risks before Profits, then you are more likely to be safe over long run." - Createwealth8888