How Many Stocks Do You Own

Friend showed me his portfolio over coffee last weekend. Seven mutual funds. He had been adding one a year for seven years. Said he was "well diversified."

I asked him how many stocks he actually owned. He did not know.

We pulled the latest holdings page for each of his seven funds and counted unique tickers across all of them. Ninety two names. He looked relieved. Then I ran him through the math behind diversification and his face changed.

Evans and Archer ran the foundational study back in 1968. Statman refreshed it in 1987. Plenty of follow-up work since on Indian equities specifically. The curve has held up across markets and decades. Five stocks captures roughly 50 percent of the diversification benefit available in equities. Fifteen stocks captures 85 percent. Thirty captures 95. Eighty captures 99. The curve climbs steeply to about 20 stocks then bends flat. Every additional name past 30 buys you a fraction of a percent of variance reduction. Past 80 you are essentially flat. The math does not care whether the names got into the portfolio through direct purchase, a mutual fund, an ETF, or a smallcase. The plain-English explainer on diversification and concentration math is at https://rupeecase.com/learn/

Now we ran it on his stack. Ninety two unique names looked great on paper. The arithmetic underneath looked different. Seven names showed up in five of his seven funds. HDFC Bank, Reliance, ICICI Bank, Infosys, Larsen and Toubro, Bharti Airtel, TCS. The top 10 by aggregate weight carried 47 percent of his portfolio. The bottom 60 plus holdings sat at less than half a percent each, scattered through the back of every factsheet, none of them big enough to move the outcome on the way up or defend the outcome on the way down.

He was not paying seven fund managers for diversification. He was paying seven fund managers to all hold the same top 10 names in slightly different slices and then add a long tail that the math says cannot move the needle. The 1.65 percent average TER on a 7 lakh corpus is roughly 11 thousand a year in fees. Sixty percent of that is paying for the closet-index portion of the stack . the part an index fund delivers for 0.20 percent.

The honest audit is three questions. How many stocks do you actually own when you collapse the funds into one tickers list. What is your top-10 concentration as a percent of total. What percent of your money is doing real work versus paying for the appearance of safety.

More funds is not more diversification. Past a point it is just admin.

The MF-stack-versus-systematic-alternative audit you can run on your own portfolio is at