Karen:
On the question of the number of stocks to hold, the reason for diversification is to reduce portfolio volatility and risk, the more stocks you have the lower the chances that any one will wipe you out.
But, volatility is reduced only if the stocks are not correlated, if they don’t go up and down together. That means that the stocks should be from diverse industry groups. While I can’t prove it, it seems that about 12 stocks from diverse industries is enough to protect your portfolio.
There should be a strategy behind the number of stocks in a portfolio. For example, Charlie Munger advocates a concentrated portfolio with your best picks and watched like a hawk. Peter Lynch had hundreds of stocks in the Magellan Fund but not evenly distributed. He had large positions in the core holdings and a long tail of small positions of potential ten baggers.
Volatility is a funny thing, if you don’t need the money to cover current expenses volatility has little effect on you but volatility for a mutual fund is a problem because lots of people bail if the fund goes down. Volatility is also a problem if the stock price is tied to some kind of covenant, for example, if you are forced to “mark-to-market” even if you have no intention of selling.
What it comes down to is that you have to know yourself and how best to meet your own needs and style.
Denny Schlesinger