Quote of the Day - Diversification

[Scooterd]

"Diversification is only a free good if one cannot identify mispriced securities.
Once the concept of mispricing is introduced, diversifying away from undervalued securities reduces a portfolio’s expected return. Instead of more diversification always being better, diversification becomes a trade-off: it lowers the risk but at the cost of also lowering expected return. We don’t want to dilute our best ideas any more than is required to be prudent." - Bill Nygren

 - Scoot

[fenders53]

It is very easy to de-worsify a portfolio if you over diversify.

[rnsmth]

(12-28-2021, 10:17 AM)Scooterd Wrote: "Diversification is only a free good if one cannot identify mispriced securities.
Once the concept of mispricing is introduced, diversifying away from undervalued securities reduces a portfolio’s expected return. Instead of more diversification always being better, diversification becomes a trade-off: it lowers the risk but at the cost of also lowering expected return. We don’t want to dilute our best ideas any more than is required to be prudent." - Bill Nygren

 - Scoot

Bill Nygren is a sharp fellow.  Early in my investor career I owned a couple of Oakmark funds and I always enjoyed his newsletters.

[cemanuel]

Yes, diversification is not a return but a risk management strategy. Let's face it - if I were 100% confident in my stock-selecting ability and knew I'd never make a mistake I'd just pick one company and ride the heck out of it.

Unfortunately my innate fallibility has been demonstrated many times.

[fenders53]

(12-29-2021, 05:04 AM)cemanuel Wrote: Yes, diversification is not a return but a risk management strategy. Let's face it - if I were 100% confident in my stock-selecting ability and knew I'd never make a mistake I'd just pick one company and ride the heck out of it.

Unfortunately my innate fallibility has been demonstrated many times.

Yes, I knowingly lower my return for some peace of mind.  I don't need 50 tickers to accomplish that though, and that is where I found myself quickly headed.  I just don't have that many great ideas.  I'll more than likely end up with a bad ETF.

[cemanuel]

Yes, I knowingly lower my return for some peace of mind.  I don't need 50 tickers to accomplish that though, and that is where I found myself quickly headed.  I just don't have that many great ideas.  I'll more than likely end up with a bad ETF.

I was able to add more companies pretty easily when depositing more cash until I got past 30. From that point it seemed that every time I looked at getting something else, I liked what I already owned as well or better. Think I got to 34 at one point. Sitting at 29 right now. 

[fenders53]

(12-29-2021, 10:02 AM)cemanuel Wrote: Yes, I knowingly lower my return for some peace of mind.  I don't need 50 tickers to accomplish that though, and that is where I found myself quickly headed.  I just don't have that many great ideas.  I'll more than likely end up with a bad ETF.

I was able to add more companies pretty easily when depositing more cash until I got past 30. From that point it seemed that every time I looked at getting something else, I liked what I already owned as well or better. Think I got to 34 at one point. Sitting at 29 right now. 

I landed in about the same place.  When I got to well over 40 I always had two or three struggling tickers and didn't have an adequate explanation why I added them.  I'd like to end up with 20 but it will probably be 25-30.

[rnsmth]

(12-29-2021, 10:24 AM)fenders53 Wrote:

(12-29-2021, 10:02 AM)cemanuel Wrote: Yes, I knowingly lower my return for some peace of mind.  I don't need 50 tickers to accomplish that though, and that is where I found myself quickly headed.  I just don't have that many great ideas.  I'll more than likely end up with a bad ETF.

I was able to add more companies pretty easily when depositing more cash until I got past 30. From that point it seemed that every time I looked at getting something else, I liked what I already owned as well or better. Think I got to 34 at one point. Sitting at 29 right now. 

I landed in about the same place.  When I got to well over 40 I always had two or three struggling tickers and didn't have an adequate explanation why I added them.  I'd like to end up with 20 but it will probably be 25-30.

I used to have 35 or so.  Down to 26, 21 companies, 1 ETF and 4 CEFs

EDIT: make that 27, added RY this morning.

[fenders53]

(12-29-2021, 10:54 AM)rnsmth Wrote:

(12-29-2021, 10:24 AM)fenders53 Wrote:

(12-29-2021, 10:02 AM)cemanuel Wrote: Yes, I knowingly lower my return for some peace of mind.  I don't need 50 tickers to accomplish that though, and that is where I found myself quickly headed.  I just don't have that many great ideas.  I'll more than likely end up with a bad ETF.

I was able to add more companies pretty easily when depositing more cash until I got past 30. From that point it seemed that every time I looked at getting something else, I liked what I already owned as well or better. Think I got to 34 at one point. Sitting at 29 right now. 

I landed in about the same place.  When I got to well over 40 I always had two or three struggling tickers and didn't have an adequate explanation why I added them.  I'd like to end up with 20 but it will probably be 25-30.

I used to have 35 or so.  Down to 26, 21 companies, 1 ETF and 4 CEFs

EDIT:  make that 27, added RY this morning.

Enter the debate of how close one should watch their holdings?  If I enter a blue chip for the long haul, then initial research may well be sufficient for many years with an annual review.  Reading a couple hype articles on a forum isn't good enough for a larger position. When I held 45+ stocks I was always holding at least six companies with less than stellar balance sheets, less than top notch management, questionable moat etc.  Now I needed to be listening to quarterly conference calls for 15 companies.  An ETF is a better place for that part of my port.  Actually the Schwab fund I think you own accomplishes that.  It contains some stocks that need watched if held individually.  (You can make a hobby out of tracking T or MO).  The alleged "value traps".  You can skip the stress when protected by the ETF's diversity.

[Scooterd]

(12-29-2021, 06:41 PM)fenders53 Wrote:

(12-29-2021, 10:54 AM)rnsmth Wrote:

(12-29-2021, 10:24 AM)fenders53 Wrote:

(12-29-2021, 10:02 AM)cemanuel Wrote: Yes, I knowingly lower my return for some peace of mind.  I don't need 50 tickers to accomplish that though, and that is where I found myself quickly headed.  I just don't have that many great ideas.  I'll more than likely end up with a bad ETF.

I was able to add more companies pretty easily when depositing more cash until I got past 30. From that point it seemed that every time I looked at getting something else, I liked what I already owned as well or better. Think I got to 34 at one point. Sitting at 29 right now. 

I landed in about the same place.  When I got to well over 40 I always had two or three struggling tickers and didn't have an adequate explanation why I added them.  I'd like to end up with 20 but it will probably be 25-30.

I used to have 35 or so.  Down to 26, 21 companies, 1 ETF and 4 CEFs

EDIT:  make that 27, added RY this morning.

Enter the debate of how close one should watch their holdings?  If I enter a blue chip for the long haul, then initial research may well be sufficient for many years with an annual review.  Reading a couple hype articles on a forum isn't good enough for a larger position. When I held 45+ stocks I was always holding at least six companies with less than stellar balance sheets, less than top notch management, questionable moat etc.  Now I needed to be listening to quarterly conference calls for 15 companies.  An ETF is a better place for that part of my port.  Actually the Schwab fund I think you own accomplishes that.  It contains some stocks that need watched if held individually.  (You can make a hobby out of tracking T or MO).  The alleged "value traps".  You can skip the stress when protected by the ETF's diversity.

The Older I have gotten, the more selective I have become with what's held my investment portfolio. I would rather have 4 shiny Quarters than 100 dull pennies. Quality vs Quantity. Additionally I have much much better things to do - Than have to constantly keep tabs on 100 dull pennies.

"If we think that risk is roughly equivalent to the probability of losing money on an investment, then perhaps we should ask, “are you more likely to lose money owning a concentrated portfolio or a highly diversified portfolio?” The common sense answer is that it depends on what’s in each portfolio!" - Howard Marks

[cemanuel]

Enter the debate of how close one should watch their holdings?

Once I own it I do the following:

• Read through the quarterly ER, particularly financials
  
• Read through the earnings call transcripts
  
• If there is any unusual price movement in either direction during a trading session, or AH, see if I can figure out the reason
  
• Closely read though the company's AR and financials
  

The above is for dividend-payers I plan to hold long-term. If in the IRA I decide to trade there will be more but the specifics will depend on the individual stock.

EDIT: I also try to get to each company's IR page at least once a month. No real schedule but I do note it on the index card I keep for each company to keep me on track

[fenders53]

That is very thorough. I try to pay that much attention to my core holdings. Some of my long held stable stocks don't get that much attention though. (JNJ-XEL) I should get to the company IR sites more. I usually do that during my accumulation phase to make sure I have confidence as I build. Some companies do have very good sites.