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Dear Reader,

Here’s wishing you a very Happy New Year 2015.

The year 2014 was the year to dream BIG. That was the year when many did not believe the things that were possible in the Indian stock market. But if you thought BIG, you would have taken advantage of the emerging opportunity. You would have realized the potential in our backyard. See Greeting Card 2014.

This year, we wish you –

Seasons Greetings and a very Happy New Year 2015

Make 2015 the year of Focus and Concentration.

Let this be the year when we do not get carried away by the opportunities. But we instead ride and take advantage of these.

Just as Arjuna was not distracted, and when he looked into the water all he saw was the Fish’s eye (for more details read this). In the same way, we as investors need to focus on a few but better investment opportunities and bet big on them.

A note on Diversification Versus Concentration

How many stocks should you own in your Direct Equity portfolio?

This is a complex question, with no straightforward answer. On one hand we have Peter Lynch who owned at times thousands of shares in his Mutual Fund. His policy was to buy and hold for 10+ years as long as the story of the company develops on expected lines, as the value unravels over long periods.

On the other hand we have Warren Buffet who buys as few shares as he can, and once he has decided to buy, he buys as much as he can of the share, in fact preferring to buy out the owners and keep the management in place. With the funds he is deploying, he is actually holding very few stocks.

1. The basic principle is simple actually. The more diversified an investor in the Indian equities, the more likely the investment returns are going to be close to the average. And lower is the Risk.
2. Another thumb rule is that no single share, at the time of investment, should be more than 15% of your entire portfolio.
3. However the more shares you have, the more difficult it becomes to track the events and performance.
4. And experienced mature professional equity investors who can devote sufficient time to analysis and research, and have high confidence and conviction in their shares, have super concentrated individual portfolios of just 3-4 stocks!!

Conclusion:

My opinion is that individual investors who are not investment professionals but have significant wealth in equity should have 12-15 stocks in their portfolio. This requires some discipline, and a periodic review.

1. JainMatrix Investments researches many stocks, and has a research universe of about 50. But the Model Portfolios are only Large Cap – 7 and Mid and Small Cap – 7, a total of 14 recommendations. These portfolios have done very well against their stated objectives, see Investment Service.
2. As the Indian markets appreciate to new highs, like diligent gardeners, we need to prune our portfolios carefully and build the Focus and Concentration. See Portfolio Review Service for more details.

So have a great New Year 2015 – the year of Focus and Concentration.

Happy investing,

Punit Jain

JainMatrix Investments

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent Financial Expert/Advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com