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

To: Paul Senior who wrote (41263)	1/29/2011 11:02:19 PM
From: geoffrey Wren	1 Recommendation Respond to of 78622

I see four reasons to run your own portfolio as opposed to low-cost ETF's or mutual funds. I am sure there are more, but the four I see are: 1. Controlling the timing of capital gains, losses. For instance, if you have purchased a stock for $10,000 and it is now $5,000, and you still like it, I say buy another tranche, wait 31 days, and then sell the first tranche and lock in your loss. There are other plays like this if you control the trading. 2. Reduce cost. Even low cost ETF's can run, say .2% fees, or $400/year on $200,000 invested. Well, if you have $200,000 to invest in that ETF, you can create your own portfolio of 15 stocks for less than $150 in commissions, and if you only moved positions of three stocks a year, running cost would be less than $100/year. I would not think this reason for running your own portfolio would be significant until you had maybe $500,000 or more to work with. 3. Favor classes of stocks in IRA. I am not sure why more is not written about this. It is a given that Muni bonds yield less because the rich chase after then, and these should not be held in IRA's because the tax benefits would be lost. I think it is also a given that REIT's yield more because their dividends are not given the 15% tax rate. Sure there are many other tax deferred investors such as pension funds, but they cannot move into thinly traded positions. At any rate, I have a fair amount of REIT's in my IRA's, and it seems to me there is an edge there. 4. Be a stock picker. As to being a stock picker, I would advise anyone starting out to be be conservative at first, in that same way that if you are joining a poker game it is a good idea to play slow at the beginning until you understand the game. I did okay when first venturing into investments, but below the index (I always reference the S&P500). I did about as well as a typical mutual fund manager I suppose. Luckily I did spread my bets out at first. Since 97 I have outperformed. Maybe it has been luck. There are serious and weighty arguments that one cannot outperform the market except by luck. I tend to believe that is true in the large cap stocks. But I think there is opportunity in small-cap stocks that are not so much followed, especially odd eccentric small-cap stocks in transition. I do not think one should attempt to be a stock picker unless one spends 10 hours a week or more working at it. Its best if you are in position to monitor your stocks over the course of the day. Mostly I troll for new ideas. I do not see the need to be in more than 20 stocks, and I concentrate a lot in my top 3 or 4 ideas. Respect other investors, but never invest just because someone else invested. Come to your own conclusions. Do not trust managements. Some are honorable; more have the ethics of used car salesmen. So here are two recommendations: MDH and RAS. Check them out. I am still trying to come to an understanding of SVU.

To: Paul Senior who wrote (41263)	1/30/2011 1:30:57 AM
From: Jim P.	Read Replies (1) \| Respond to of 78622

Your words are accurate. My portfolio is and was concentrated. My needed retirement assets are not. I have a pension and a 401K that are actually enough. I have made outsized returns with a taxable account and an IRA because I could afford to take the risk. I plan to use the extra to retire a little bit earlier than I would have. Is it for everyone, certainly no. But if you can take a risk with a portion of your assets by concentrated bets and have an interest then I think it is ok to go against conventional advice. Every small business owner does the same thing for a while and taking an ownership position in a security that is outsized is the same in my opinion. My advice to most people is diversify among dividend payers. There will be some on this site that swinging for triples and home runs at some point makes perfect sense to me. The difficult part is stepping back and hearing the wise counsel that you are giving when the triples and home runs are working. I have been investing for over 20 years and realize my weaknesses and strengths. Some expensive lessons for sure but I have gotten much more patient with capital and tend to do better then I was ever hoping to do. Personally I think part of the problem with most investors is they trade too much because they are speculating only instead of looking at investments as an ownership stake. Quality management and quality assets become easier to spot with practice but certainly I do not have time to keep very close track of even 10 companies. As far as the companies I am invested in currently the only one that I think has a likely chance of being very undervalued is Sandridge and my position is still small. If it becomes very obvious that they have turned around there will be plenty of gains left to increase the position. APL bottomed at$2.50 but I did not buy until $8 when the turnaround was clear. 9 months of watching and research before I pulled the trigger. Lynn energy was easier when there were crazy prices in the meltdown. I sold NFLX to buy Linn energy and am happy with my choice. Linn energy and Atlas Pipeline are not overvalued IMO but would not be such large positions buying at todays prices. I am happy to get the compounding at my cost basis with increasing distributions so I have no reason to sell today except to diversify and even then would keep some of both because the assets are so long lived they fit my criteria for long term holdings. Thanks for your thoughtfully worded post. Jim

To: Paul Senior who wrote (41263)	1/30/2011 2:58:00 PM
From: Walter Bagehot	Respond to of 78622

Of course, it should be pointed out that the benefits of diversification can be achieved through just 10 stock, which will reduce porfolio risk by 90% It should also be noted that "risking" a large portion of your portfolio on a wager is not exactly what most of us on this board will be seeking to do, given we are value investors with margin of safety concerns! The difference between variance in results and permanent capital loss is large - whether you can tolerate volatility and know you have achieved margin of safety and long-term protection of investment is the distinction we are seeking here

To: Paul Senior who wrote (41263)	2/5/2011 9:22:19 AM
From: Madharry	Read Replies (1) \| Respond to of 78622

the problems with being concentrated is the it increases your exposure to fraud, which is very difficult to control, and force majeure- weather and political events are difficult to predict. On top of that it inreases your volatility and most inexperienced investor and many experienced ones panic when they see their portfolios dropping 30-40-50% or more. I vividly remember seing a video of buffet and munger talking about how the price of Berkshire hathaway dropped over 40% 4 times in the 25 years they had been a public company.