Rule Breaker Mailbag: A Contrarian View on Owning Hundreds of Stocks

At The Motley Fool our philosophy is that the best way to beat the average market performance is to be a stock-picker -- carefully selecting a smaller number of companies that look ready to outperform. But if you build too broad a portfolio, the theory is you risk regressing to the mean -- you wind up averaging your returns down to about what you'd get from the very index funds you were trying to beat.

However, in this segment from the Rule Breaker Investing podcast, Tom Gardner reads an email from a Foolish service subscriber whose experience shows that it doesn't have to work out that way.

A full transcript follows the video.

This video was recorded on Jan. 31, 2018.

David Gardner: Mailbag Item No. 4: This comes from Vince G. He is also a member of the Motley Fool online community. One of our premium service members. His screen name is Fool4ZTribe. I'm thinking this might be a Cleveland Indians baseball fan.

"David, I've been a Fool since 2004, I think, and a better person and investor for it. One of the raging debates and oft-discussed issues in Fooldom concerns the ideal number of stocks to hold in one's portfolio." And I did foreshadow this a little bit earlier. "I believe I'm in the minority, because I have hundreds of stocks, all Motley Fool recommendations guided by an evolving allocation strategy that assigns weights to each different Motley Fool service's recommendation."

Now, this is somebody who's obviously very experienced and deeply invested in Fool services. Vince probably knows four or more of our services and has his own allocation model that he's built up over time. And I often love it when somebody has come up with their own way of using my tool [in this case, Motley Fool services, or your tool, or any kind of tool].

Usually it shows value-add on the part of that person. Somebody who's intellectually curious and is personalizing it and making it their own, so I don't know how you're doing Vince. I guess we're about to hear, but congratulations that you've taken those steps. That's very impressive.

"Time after time," he goes on, "I hear folks, even Foolish ones, discussing that having so many stocks is like creating your own mutual fund and how hard it is to consistently beat the market with that strategy. My data says otherwise. From inception, way back in 2004, my Foolish fund is zipping along at over 12% compounded, two points better than the S&P 500." That's not bad when you're getting that kind of outperformance for 13 years.

"Last year was particularly satisfying. 31% up for this Fool compared to 21% for the market. It's not how large you make it -- it's how you make it large."

Well, thank you, Vincent! The reason I wanted to share that one is I think it does speak, maybe from a minority viewpoint, because I think most people think they can't buy all the stocks. If my brother and I each recommend one in Stock Advisor each month, they have to decide which one, or maybe they only have a certain amount of money coming in for the quarter. If there are eight stock picks in a quarter from Motley Fool Stock Advisor, they think they can only buy one or two.

These days it's certainly possible to buy fractional shares. You can, fairly easily, just follow one of our services and just buy each pick every month. Now, not everybody even wants to do that. I'll pick a stock, and somebody reasons, "I'm not convinced. I'm going to wait on that one." I, myself, as your advisor, am absolutely fine with that. Again, I love it when people make our services their own.

But it's great to hear from somebody who's actually built up hundreds of stocks, because you would think he's just his own mutual fund, and that can't beat the market, but I'm really happy that Vince keeps score. Very Foolish of him. I'm happy to share that out.