Advice on Diversification

[fenders53]

(10-15-2020, 09:24 AM)ken-do-nim Wrote: Thanks to my divorce, I'm 90%+ in my company stock.  It's done quite well, but yeah if tech pops, so goes my life savings.

You seem smart enough to work through that when you can.  Acknowledging the risk is step one.

[Dividendwayfarer]

(10-15-2020, 08:02 AM)fenders53 Wrote:

(10-14-2020, 07:19 PM)Dividendwayfarer Wrote: This is a moot point as you already made the moves. However let me hijack this thread and ask a portfolio management/investment question.

Why would you want to sell for the sake of diversifying? LOW is a great stock (HD too so don’t jump on me fenders) and it has served you well. Why don’t you let the winner run and just buy stocks in other sectors? You will get to your targeted diversification by sector in the long run. IMO, LOW is not overvalued. The forward PE is under 20 and the peg ratio is under 1.5. I know I am betting on future growth but I missed many good opportunities of buying stocks because it seems overvalued at the time. If you have a large position in some high flyer tech stocks then I agree it’s prudent to trim. It may be the best time to add on LOW now if I ask myself 5 years later.

Because he is 70% in a single stock?  Diversification is a key tenet of responsible investing.  There is no stock on this earth worthy of 70% of your port.  Whether it worked the last 25 years still doesn't justify it.  XOM or GE might be a good examples, but if not there are a hundreds more that ended far worse.  A ten year bull market jades our opinions for sure.  There are a lot of mediocre stocks you could have put all your money in and done well enough.  Doesn't make it a sound strategy.

I guess I was thinking a targeted portfolio size of 500k in the long run; 40 shares of LOW is not even a full position if you want to hold 50 companies. I see your point though. 

I am generally against selling a winning stock. Some lessons learned from my own experience including selling AAPL I bought around $100/share in 08/09 after making a 20% gain. I still regret today.

[fenders53]

(10-15-2020, 10:51 AM)Dividendwayfarer Wrote:

(10-15-2020, 08:02 AM)fenders53 Wrote:

(10-14-2020, 07:19 PM)Dividendwayfarer Wrote: This is a moot point as you already made the moves. However let me hijack this thread and ask a portfolio management/investment question.

Why would you want to sell for the sake of diversifying? LOW is a great stock (HD too so don’t jump on me fenders) and it has served you well. Why don’t you let the winner run and just buy stocks in other sectors? You will get to your targeted diversification by sector in the long run. IMO, LOW is not overvalued. The forward PE is under 20 and the peg ratio is under 1.5. I know I am betting on future growth but I missed many good opportunities of buying stocks because it seems overvalued at the time. If you have a large position in some high flyer tech stocks then I agree it’s prudent to trim. It may be the best time to add on LOW now if I ask myself 5 years later.

Because he is 70% in a single stock?  Diversification is a key tenet of responsible investing.  There is no stock on this earth worthy of 70% of your port.  Whether it worked the last 25 years still doesn't justify it.  XOM or GE might be a good examples, but if not there are a hundreds more that ended far worse.  A ten year bull market jades our opinions for sure.  There are a lot of mediocre stocks you could have put all your money in and done well enough.  Doesn't make it a sound strategy.

I guess I was thinking a targeted portfolio size of 500k in the long run; 40 shares of LOW is not even a full position if you want to hold 50 companies. I see your point though. 

I am generally against selling a winning stock. Some lessons learned from my own experience including selling AAPL I bought around $100/share in 08/09 after making a 20% gain. I still regret today.

In a perfect world you just start off by spreading it around.  And I suggested he trim slowly because we all know what happens when you sell a good stock.  My struggle would be where to put the money today.  There aren't a lot of options equal to LOW that aren't at least somewhat overvalued today.  And I have sold AAPL too early twice.