How Many Stocks Should You Buy? A Simulation Study on Portfolio Diversification for the Swedish Stock Market

Abstract: For every stock investor, the question of how many stocks to buy is fundamental. The recommendations from the literature is wide and ranges from 10 to over 300. As a contrast, 41.79% of Swedish shareholders held only one stock in year 2020. This thesis studies the Swedish stock market between 2011 and 2020 which to the authors knowledge not has been done before within the research space of Diversication. Main conclusions are that for equally weighted portfolios, reducing the shortfall risk to 20% for a 10 year investment period would take around 120-150 stocks. For five (one) year periods it would take 150 stocks (70-80 stocks). It was also seen that portfolios held for 10 years second-order stochastically dominates portfolios held for five years and one year respectively when the portfolio size is five and greater for equally weighted portfolios.