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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: LemurHouse who wrote (508)	7/13/1998 2:12:00 PM
From: Axel Gunderson	Respond to of 1722

Andrew: I agree with all you wrote about the level of understanding required. What I was really getting at is that while the rapid changes make smaller, niche companies hard for a non-expert to value, the big, somewhat diverse companies are no more difficult to understand then a big "heavy manufacturing" company. Compared to a food or drug company, everything maybe looks hard, but I think it as likely that a Lucent or Cisco will look similar in 20 years as a financial stock will. The implication of this hold/sell strategy is that your portfolio will become "imbalanced" over time -- that is, the stronger performing issues will proportionally outweigh the others. (I put "imbalanced" in quotes, because its a loaded term --something of a sacred cow which assumes that balance/diversification is good.) Especially when compared with the allocation formula you refer to. What do you think of this issue, and what do you think Fisher would say? Fisher explicitly states that his allocation is for initial investment of funds, and that it is likely that such imbalance will occur. He writes that you should not sell to rebalance. My yardstick is pretty simple: I would try to evaluate what would be most profitable going forward. By considering taxes and valuations and every other clue available. I have no problems with the concentration, but as so many americans have found out, having the bulk of their wealth in the company stock can be problematic when the unforseen occurs. And even a Coke or GE is not invincible. I'm off to Botswana of all places. I envy you greatly. I visited Zimbabwe years ago and would return if I had the chance; Botswana was out of my budget at the time. Axel