How many stocks to own?

How to build a diversified portfolio?

Diversification can be of different types

1. Sectorial diversification : ex, FMCG, IT, Finance, Pharma, Chemical etc.
2. Geographical diversification ex, Japan, US stock market
3. Portfolio diversification, with more number of stocks. - Concentrated portfolio have less than 15 stocks, diversified portfolio have more than 20 stocks (Sharpe, W.F., 1972)

Reference: Sharpe, W.F., 1972. Risk, market sensitivity and diversification. Financial Analysts Journal, 28(1), pp.74-79.

14 to 25 looks ideal for a portfolio.

The above graph from the Financial Analysts Journal indicates that if an investor adds more stocks in the portfolio beyond 30 stocks, it would not reduce any further risk in the portfolio. It is to be noted that he graph is based on an old paper using US data. However it hold true for India today also.