Does Owning More Stocks Always Translate Into More Work?

Inspired by Dividendmantra I have been thinking about my criteria regarding portfolio composition, and primarily the number of companies I think is reasonable to own. One of the reasons that I have set an upper limit of about 20 companies, is that I have assumed that it would be too much work to monitor a larger number of companies.

But is it really true that a larger portfolio automatically needs more looking after than a smaller one? The answer is, as usual, it depends on the circumstances. Monitoring ones portfolio to closely can even have the opposite effect. One potential drawback I can see, is that it is easier to get distracted by the amount of information we are bombarded with daily. It is easy in such a context lose focus ones strategy driven by rumors and hearsay. 

What then are the factors that determine how carefully we need to monitor our companies?

I think, unsurprisingly, that the quality of the companies that one owns determines the level of monitoring required. I can offhand identify the following key factors that I think determine how careful one needs to monitor their stock portfolio:

- Do the companies you own have sound businesses and persistent competitive advantages or is it easy for competitors to steal market share? Companies that have clear competitive advantages, are more likely to have sustainable profits than companies that run the risk of losing market share to competitors.

- What are the risks associated with the markets that your companies operate in? Are there political, regulatory and other risks that may affect a company's future earnings? Fortum is a company that, because of its operations in Russia, requires me to follow the stock more closley than I would otherwise.

- How dynamic are the industries that your holdings operate in? Companies that operate in a fast changing industry run a greater risk of seeing their business models lose strength, because off the speed in which fundamentals change. The IT industri is a good example of a dynamic industri were competitive advantages can become obsolete because of new technologies.

- What financial resources do the companies in your portfolio have? Do the companies you own have financial muscles and strong owners behind them or is the level of debt high and the financial backing week or nonexistent? When it the storms companies with strong owners and balance sheets are less likely to sink.

Conclusion

The more qualities that companies in your stock portfolio posses, the greater the likelihood is that they can withstand market downturns. Does this mean, that as long as I only invest in high quality companies with a long and stable history, that I don't need to monitor my portfolio? No, of course not, but the workload will be considerably less than if one's portfolio only consist of smaller and less established companies.

What is your limit regarding the number of stocks you feel comfortable owning and why?