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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jim P. who wrote (41260)	1/29/2011 5:56:10 PM
From: Dan Meleney	Read Replies (1) \| Respond to of 78615

Jim P, can I ask what are your current holdings? I'll try to get my own posted tomorrow...gotta run out with wife just now for din. Dan

To: Jim P. who wrote (41260)	1/29/2011 6:18:27 PM
From: Paul Senior	1 Recommendation Read Replies (4) \| Respond to of 78615

I interpret what you are saying as: having a very concentrated portfolio gives a very wide variation in expected results. In being concentrated, since the band of expected performance is wide, some people are going to do very well -- wind up at the top with excellent outsize gains. Similarly as you say, if the person has made enough or is near retirement age and is still concentrated, and thus is still in that wide band of expected results, then one ought maybe consider he/she could drop to the low end of that performance spectrum, and lose a lot - if not most - of the gains. So therefore diversify and reduce that band, reduce that risk. To me, an issue is not whether being concentrated can bring on more wealth than being diverse, but rather, what works for the average person? I always recall the heyday of Yahoo, with the media report of the family sitting in the front of the annual stockholders' meeting. They had little experience in the stock market, owned only Yahoo, but went all in at the right time, hung on and hung on and hung on, and made $millions from their very small investment. This extreme reminds me that there are always going to be people who do well with concentrated portfolios. It doesn't mean it's the sensible or best or optimum way to invest. My opinion is that for most people, they have a better chance of reaching their financial goals by being diverse in their investments. (Assuming goals are typical normal, ie. kids through college/retirement secure, etc.) Furthermore, it's not necessary to beat the market. If people would invest early enough and consistently enough, with dividends reinvested, they only need average returns. We see studies that show that most market participants can't even get average returns (about 10%/yr, I believe, with dividends reinvested). Reasons seem to be people sell out at wrong time, buy at wrong time, don't realize dividends are a significant component of the 10%, and don't reinvest the dividends they do get. I wonder too, if part of that is that most people maintain too concentrated a portfolio. -g-