From: John Conover <john@email.johncon.com>

Subject: Re: forwarded message from William F. Hummel

Date: Fri, 14 Aug 1998 22:24:49 -0700

John Conover writes: > > If you look at the equation for P and G, as a function of n, you will > find that it has a shape like a square root function-there is little > advantage in holding more than 10 stocks, (although there is a grave > disadvantage in holding less.) The incremental gain in adding an > eleventh stock is modestly marginal. > Attached is a plot of the daily growth in value of a portfolio as a function of the number of stocks in the portfolio. It uses the stock from the stock exchange model developed previously, where: rms = 0.0231 avg = 0.0005331 P = 0.511555 and: G = ((1 + (0.0231 / sqrt (x))) ** ((((0.0005331 / 0.0231) * sqrt (x)) + 1) / 2)) * ((1 - (0.0231 / sqrt (x))) ** ((1 - ((0.0005331 / 0.0231) * sqrt (x))) / 2)) Note that there is little advantage in administering more than 10 stocks in the portfolio, but significant disadvantage in less. John

-- John Conover, john@email.johncon.com, http://www.johncon.com/

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