Final answer:
By increasing the number of companies he holds stocks in, David reduces the risk of his investment portfolio through diversification, which doesn't necessarily affect the portfolio's return.
Step-by-step explanation:
When David increases the number of companies in which he holds stocks, the effect on his investment portfolio is that the risk of his investment portfolio decreases. This principle is known as diversification, which involves spreading investments across a range of companies to reduce the impact of poor performance from any single company. While diversification can reduce risk, it does not inherently guarantee an increase or decrease in the return of the investment portfolio, as returns depend on the performance of the individual stocks themselves and market conditions.