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On Thu, 7 Aug 1997 18:29:30 -0500, Michael L. Robb wrote:
Rob,
I am CC'ing this to the Metastock list. You wrote:
>It's none of my business, but it looks like you are not diversified;
>and spread too thin.
Well, I didn't post my portfolio because I'm shy, retiring, and afraid
of criticism. ;-) I post my trades and holdings to invite
discussion. First, someone might learn something from them (a bit of
ego there.) Second, they might tell me something I should know.
Third, it might encourage others to do the same, and then *I* might
learn something.
And fourth, it often forces me to defend my trades, techniques, etc.
IN WRITING. This forces me to put my thoughts in order.
Which brings us to diversification.
I've been diversified. Didn't like it. Before I started handling my
own investments, I let my broker pick all my investments. He took the
job seriously, and like anyone investing other peoples money, did so
conservatively. He had me in a mix of stocks, bonds, managed futures,
limited partnerships, you name it.
If judged against, say, US Bonds, his diversified portfolio did OK.
But when judged against the market, it sucked!
So I started cutting down on the diversification. First, I decided
how much I could risk. My house is paid for, and I do not put that at
risk. I am a health 45 year old, and expect to continue earning money
for more than the next 20 years. Therefore, I feel I can afford to
risk 100% of my savings in the stock market.
At first, I used the Peter Lynch method for picking good companies. I
bought Coke, Home Depot, Boston Chicken, Microsoft, Intel, Hewlett
Packard, and others. Bought and held for the long term. While I was
100% in stocks, it was a diversified portfolio.
During the next year, I studied Fundamental Analysis, and studied my
companies. What I found was that even when you pick the right stocks,
you can be dead wrong on the timing.
So I started studying Technical Analysis. Let me interject that I
have a PhD in Physical Chemistry, which makes me technically
proficient at math, and VERY SKEPTICAL. A good scientist learns to
guard against personal bias and wishful thinking. TA has an excess of
both of these.
I have found just ONE THING that works reliably in TA: Trend Analysis
(sometimes called Momentum.) Note that I said "in TA". I am not
saying that other investing techniques do not work, such as Value
investing, Buy and Hold, Bottom Fishing, etc.
So now-a-days, I combine FA with TA. I like to find companies with
good fundamentals, and up trending stocks.
I also found out one other thing. It's a lot easier to dig into the
fundamentals of a company who's business you can understand. For me,
that's high tech and biotech. High tech is where most of the growth
is today. Biotech is where it will be tomorrow.
So I don't diversify any more. (At least, not for its own sake.) I
stick to companies I'm interested in, and who's business excites me.
I know this increases my risk. I expect it to also increase my reward
(if I do it right.)
The opposite of "Don't put all your eggs in one basket" also works:
"Put all your eggs in one basket, and watch that basket VERY
carefully."
Now your second point, "spread too thin." Well, I don't have just ONE
egg in that basket. And I LIKE all these companies. I currently own
about 15 stocks, which is about the max for me. I would be better off
with only 10.
So, how many stocks do YOU own, and which ones? And why?
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