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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: matvest who wrote (14323)	1/12/2001 3:17:12 PM
From: Bernie Goldberg	Read Replies (2) \| Respond to of 18928

Hi Larry, Examining the portfolios used as examples of diversification in Mr. L's book make it very clear that it is far from necessary for stocks to be in the same industry. What Mr. L stresses is that companies should be of sufficient caliber that you don't have to worry about them not being around much longer. Making a mutual fund is simple. One of the things mentioned in the book is that you do not diversify by investing $9000 in one stock and $150 in the other. You should strive to have an equal amount in the 2,3, or 5 or whatever number of stocks you use. To make the math easy lets work with two stocks. Suppose you wanted to invest in APCC today at 15 and USON at 6 7/8. Let's go with 66% stock and 33% cash and $10,000 to invest using AIM. You would buy $3333 dollars worth of each stock which would leave you with 3333 for Cash reserve. You would purchase 222 shares of APCC and 485 shares of USON. 222 * 15=3,330 485*6.875=3,334 This would give you a total stock value $6,664 with 3,336 for Cash reserve. Pick a number of shares. You could pick any number you want. Lets say 350. That is sort of in the middle of 222 and 485. You divide 350 into 6664 and get 19.04 as the starting price of you mutual fund. This is all very easy to do in excel or any other spreadsheet. This is what you put into Newport or whatever other AIM software you are using. 350 shares of XYZ at 19.04 3336 as cash reserve. When you do your updating you change the prices of the individual stocks. When the total value (NAV) changes you divide 350 into the new NAV to get the new price per share. This is exactly how all the Mutual Funds do it. They just have more stocks and bigger numbers to deal with. On Page 163 Mr. L's trust is listed. Dupont General Electric Realty Growth Investors Benefit Exxon Standard Oil Merck Eastman Kodak Caterpillar IBM Minnesota Mining International Basic Economy Rockefeller Center. I am not suggesting that these stocks be bought today. Mr. L vociferously proclaims that one must not overdiversify while putting this selection of stocks which worked very well for some guy named Rockefeller. Hell, what did he know? I think if you were to examine the Portfolios of most(not all) here on SI you would find a greater number of stocks with much less diversification. I would guess that most portfolios here are 70% or more in Tech stocks. I could be wrong but that is the sense I get when I read the posts. Right now my friend's minifund has $2800 invested in USON and 3490 invested in APCC. When a sell signal is received we simply sell the shares from the stock has more reached a higher valuation in the fund.