A Shikiho Veteran on Building a Portfolio: Spread Across 25 Names, Separate Offence From Defence

Kaisha Shikiho is the company handbook Japanese investors rely on, and this instalment brings in a veteran reader of it to discuss the most basic and least well-executed task in investing: how to build a portfolio, why around 25 holdings, and what beginners should do first. The value is the process, not the stock list.

Why 25? Diversification is not about averaging away returns; it is about ensuring no single company can wreck the account. With three to five holdings, one earnings surprise decides your year. Past roughly twenty, single-stock risk is diluted and your account behaves more like the market, so what remains is the contribution of your selection. More is not better — beyond a point you cannot follow them.

The second idea is the split between offensive and defensive holdings. Growth names fall fastest in a drawdown; steady, dividend-paying names look dull in a rally. The right ratio depends on when you need the money, not on how bullish you feel.

Two local considerations for overseas investors: currency and tax. Yen moves change your realised return once converted home, and Japanese dividends are taxed at source. Neither changes stock selection, but both change what you actually receive.

The practical step is to write your rules before buying — how many holdings, what ratio, what triggers a sale. A handbook solves the information problem. It cannot solve the discipline problem, which is what usually costs people money.