Thanks for your interest.
You ask; "So about 30% of the PF is currently in SPY and the rest diversified across a number of long stock positions. Does "currently" imply that the SPY position could grow to 100% at times? Could it ever drop to 0%? Maybe a better way to ask this is: What SPY% range have you observed over time?"
Mine is a diversified portfolio, subject to all the discipline thereof. My "PF target" sees a holding of "LargeCapUS" of 26%, but it has climbed recently to 35.5%. This has been caused by taking profits on segments that have outperformed and converting them to my S&P index. When the S&P500 outperforms, it will be used to enhance the holdings of underperforming sectors. (e.g. My targets show Basemetals of 13%, but they have fallen to only 4.7% as I took profits....). I read recently that it is not unusual for professionals to put realised profits into "benchmark" stocks, thus "locking them in" to the benchmark.
You ask; "The stock positions in aggregate have to outperform the S&P over a certain period of time, otherwise why bother with stocks, right?"
Yes, that was my original intention. If I can't beat 'em, simply join 'em. But the strategy seems to be steadily outperforming the S&P500, even during the years that the S&P500 has been strong. I have backchecked and I am confident that this success can continue when the S&P500 is weak. (Hubris ?)
In a PM you mentioned that you don't buy on weakness. I have two stocks whose market price (in terms of S&P500) have been weak, but I have persevered with them because I feel the weakness is unjustified. They are TOC and UFX.T. Mind, it is only recently that UFX has been weak. Prior to my making two purchases as downside intermediate targets were triggered, I had made two sales as upside targets were achieved (selling is more fun). Given fair fundamentals, the lower the price the more confidence I have. Moreover, each sale/purchase is made with the express intent of reversing it profitably when the nearest intermediate target is reached.
I might also mention that because I am pricing in terms of the S&P 500, the volatility of individual stock prices is far lower than it would be priced in cash. This means that to achieve the required trading a comparatively small move suffices. And to achieve a worthwhile GP per trade, the amount traded is higher. As a rule of thumb, I have decided to make my ultimate target, at which point I would be all out, at 50% above its current S&P price. In my experience this ultimate target has not been achieved often.
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