Following up on yesterday's video a reader commented that he has been in a lot of different holdings each with small weights but he feels that it could become too time demanding to follow a lot of holdings.He did not quantify what a lot is. I have mentioned quite a few times that when fully invested I hold 40-45 names for the equity portion of the portfolio. I'm not sure that 45 is a lot but it is not a little.
How many holdings can you comfortably keep track of? Part of the answer depends on what you hold and what your idea of keeping track means. If a stock is a proxy for a country then in addition to knowing a little about the stock you also need to know a thing or two about what is going on in the country.
A reader left a comment on a recent post asking what sorts of problems Hungary has. Anyone thinking about Hungary, the easiest way in would probably be Magyar Telecom (MTA), of which I have no position and no plans to initiate a position, needs to be in touch with the deficits, the inflation that the central bank seems to be having a little trouble with and maybe that the rates there are quite high; that is probably a good starting point.
I don't think that burden is excessive but not everyone will want to put in that sort of time. All I'm saying is know yourself and what kind of time you want to spend.
Could you cover 80% of it with half a dozen broadish-based ETFs and the other 20% with seven or eight narrower holdings? Maybe the narrower themes should only be 10% or maybe 30%?
Sticking with 20% for narrow ideas would it then be possible to decide you want exposure to water so then analyze one of the water ETFs and then also a few stocks like maybe Hyflux (HYFXF), Valmont (VMI) or Veolia (VE), as examples? If you decide you like Hyflux would learning a little about Singapore be a possibility time wise?
Then could you repeat this five or six more times? How about more than six? Or less?
A mix like this sounds easy in a way but I think it potentially adds a layer of analysis that should be done. Anyone thinking of going narrow in the manner described in this post with 20% or more needs to be very aware of how the "satellite" portion fits in with the "core" portion. Quite a few times I have mentioned that most emerging countries have a big bank, a big oil company and a big phone company (the other day a reader added big cement company to this). Putting 3-5% into the big oil company of a country might leave you very heavy in energy which might not be bad (generically speaking) but you should know that you are overweight.
At this conference I just got back from someone familiar with my blog mentioned how loyal the readers of this site are. He is right and I should take a moment here to say thanks. Blogging is a lot of fun, I know I learn from it and hopefully you do too. Thank you.
The picture is obviously the Hoover Dam. There is a lot more going on there than I realized from watching Austin Powers and Lost In America. To repeat from the other day, if you are in Las Vegas it is worth driving the 30 miles to see it.
8 comments:
i think part of using an ETF to go broad is to understand what's in the ETF.
I know you research them thoroughly but others may just make an assumption based on the description.
For example, the water ETF, PHO, is a horrible representation of the water concept. With chemical companies, consulting companies, etc... dominating the top holdings.
LNN did not show up in the top 10 till recently after its big run up.
The more I read/study/trade ETFs the LESS i like sector ETFs. For my taste the more suited ETFs are the focused commodities, like USO, UNG, and GLD. The bearish ETFs are good in an IRA where i cannot short.
p.s. speaking of UNG. Last Fall I discussed many times buying it in the comments section. I sold my position on Friday after a 50% climb but I still would like to get back in on any +10% pullback.
Good post on Hoover Dam. Worth the trip for clean air and seeing an engineering marvel. Thought seriously about heaving my kids over the side years ago in 100 degree heat and in total aggravation from an ongoing sibling wedgy contest. Now they are all military officers. Things work out.
I tend to agree with sector or theme ETFs not having a portfolio that one would assume. Some of the so-called "green" and "socially conscious" Funds are a hoot.
On balance thogh, I think most investors agree that ETFs have been an excellent concept. When used wisely, they are a great way to mitigate risk and diversify one's portfolio at a low cost.
T
Interesting China from the WSJ
Article:http://online.wsj.com/article/SB120856528917628111.html?mod=hpp_asia_whats_news
Excerpts:
The benchmark Shanghai Composite Index has lost 49% since topping out, along with other global markets, last October. The slide was triggered by the global economic slowdown combined with the lofty valuations of Chinese stocks. It accelerated recently as investors became convinced the government would not intervene to stop the fall. The index finished Friday at 3094.67, down 4%.
Most U.S. investors are unlikely to feel much direct impact from China's stock fall, because the shares traded in Shanghai and Shenzhen are off-limits to the vast majority of foreigners. While a few U.S. funds have received permission to invest in these stocks, "it's very speculative, and the quality of companies is not comparable to the Chinese companies listed in Hong Kong," says Richard Gao, portfolio manager of the $1.5 billion Matthews China Fund in San Francisco.
AI
I suppose I'm in the minority here. I care less about what's in an ETF/index and I'm more concerned about overlap. Fundamentals don't really factor into my selection criteria - momentum is the primary driver in what I buy.
I posted my models last night: www.regimenia.com. My sentiment indicators are starting to work off their excessive pessimism, but the timing model is being bolstered by having both the S&P 500 and Value Line Composite above their 75 day moving averages. The next few weeks are going to be interesting.
Roger,
It seems to me that Fed Speak the last few sessions has been preparing the market for no cut on April 30.....Any Thoughts ?
Thanks
Banker
i believe the Fed Fund Futures market has gone from a 37.5 basis point cut (so split between 25 and 50) down to a 25 basis point cut.
If so then I'd say the Fed speakers have done a poor job if that is their intention.
For now I say no but this is so dynamic that even if that is correct right here right now it is one data point away from being very wrong.
Roger, IMHO your blog is so successful not only because it's instructive, but because you understand that communication is a two way process. You take the time to address individuals and moderate a useful discussion. Comments on other blogs just rattle around like old marbles in a coffee can. I've learned a lot from your approach and appreciate your dedication to your craft.
Roger, I love your blog, but how many laypeople really know the true intrinsic value of ANY of their holdings, much less 40 or 50 of them? And for that matter, how much do YOU really know about 40 or 50 stocks? Have you really spent the years and decades necessary to truly understand a companies business, balance sheets, customers, creditors and related value contributing aspects?
If you dont, then you have no business being a long term equity investor... but of course the market is composed largely of individual investors who have no idea of a companies real value and merely buy when a stock "feels" cheap... if you really get honest with yourself and your readers you will probably admit that...
The bottom line is that no one person can truly understand more than a handful of companies or industries, and those are really the only ones worth of investing in... after you get beyond your own circle of competence, its all guessing, hope and luck...
And its fine to operate outside of those boundaries, but to think that you have any idea what you are doing is pure hubris... most individual investors should invest in one or two companies that they have personal, direct knowledge and understanding of.... or they should pay a professional investor (not an asset allocator) to identify those companies and monitor them...
Outside of this approach, equity investing is a losing game after taxes and expenses... to counsel people otherwise is irresponsible
Cheers!
Anon
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