Your portfolio, of course.
The measurement to which I refer in my title is the number of shares that it may be desirable to hold in a value portfolio.
There was a time when I used to bet the farm, sticking my whole value bankroll on just one play or a very small number of shares, maybe two or three at a time. In writing about this style here, I always (I think) warned readers not to follow my lead because it is obviously hugely risky. But it was a risk that for a certain period of my life I was quite willing to take.
Would I do it again? Yes. I am an old fart now and for that reason am unwilling to risk everything on one share. Also I have moved quite a bit towards the my other strategy, the income investing HYP style for age reasons too, but still enjoy chucking a few quid into value plays.
Risk and reward
When I was younger, I believed that the only way to make some serious money in shares in a reasonable time period was to risk it all on one or a very few value plays, then as soon as it delivered, go cash and wait to recycle the proceeds into the next trade. I still think that now.
This is a matter of the balance between risk and reward. The more of the former you are prepared to assume, then provided you are following what you think is a sound strategy, the more of the latter you should reap but the greater the chances of not doing so.
The ratio of this balance varies between investors' personalities but I veered towards the greater risk taking end of the spectrum because I believed that value was such an attractive strategy.
It wasn't risk taking in the same sense as betting on roulette for example, a game of pure chance loaded towards the house where there is no input from the player that can alter the odds in their favour.
Beating the odds
I believed that value investing made the risks lower than they appeared to be when purchasing just one share, because I wasn't going for any old share at random. I chose them carefully according to my now well-known pyad criteria, thereby bending the odds in my favour.
In fact, that is precisely why my pyad criteria are so tight. They produce very few suitable selections, often none. But if I was going to bet the farm, it had to be on the share with the most upside potential and the lowest downside risk, with the emphasis on the latter. Minimising the downside was always one of my required features, before considering what gains I might make.
Overall it worked, though not without some lousy plays along the way that went wrong. No trading strategy can win every time, the test is whether it does win on balance sufficiently frequently to produce returns that compensate for the risks being run.
If I blew the lot, well I'd start again. That view was helped by the fact that I always had a decent job to fall back on in the very early days and shortly after, I set up and ran my own successful business for a long time.
Don't try this at home
Despite what I did, I am not going to advise any younger value investors here to bet the farm, in most cases. The exception is where you have only a thousand or two so you can't really spread it around very much.
But if say you have £50,000 that you are prepared to trade in value shares, then what? I'd say in this case look for something like seven to ten shares if you can find them, which meet your criteria. For £20,000 maybe five or six. The exceptionally tight pyad system will almost never produce that many shares in one sweep so these would have to be relaxed or other filters used according to your own views.
By the book
I've always believed that Price/Tangible Book Value (P/TBV) under 1 was the king of the value ratios, especially where book consists to a worthwhile extent of something juicy like cash, property or investments and provided this is considered at the right time. Ostensibly undervalued property won't do you much good during a slump in values.
Although a share can trade under book for a long time, provided book value doesn't deteriorate you'll find that in most cases it will out eventually by a rerating or perhaps a bid.
It does need really extreme patience to hang around for years but I'd guess that a carefully selected value portfolio comprising shares with P/TBV well under 1 as their main feature, not just any old under book shares, will do well in time.
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