Money and Finance
- Reddit Amas...
I don't think I ever posted the Alice Schroeder one. And Malcolm Gladwell did a new one today. Link to: Alice Schroeder's reddit AMA Warren is a master of time management. He knows how to ease people off the phone without making them feel dismissed....
- Warren Buffett Quote On Filters
As I've previously mentioned (HERE) how important I think filters are in deliberate practice and achieving expertise in investing, this quote from Warren Buffett during yesterday's Berkshire Hathaway Annual Meeting really struck a chord with me:"Charlie...
- Notes From The 3rd Annual New York Value Investing Congress By Marcelo Lima
Notes from 5 speakers: http://blog.valueinvestingcongress.com/2007/12/-.....-Mark Sellers at the 3rd Annual New York Value Investing Congress by Marcelo Lima - Mark Sellers of Sellers Capital spoke at length about the Kelly Criterion (you can read all...
- What's Your Weight?
No I'm not asking you to divulge your body weight, although if that will help you with any weight loss goals you have feel free to do so. The weight I'm referring to has to do with your portfolio. I think we all understand the importance of...
- Dividend Update - November 2012
November was a decent month for dividends with 5 companies paying out in my FI portfolio but none in my Roth IRA. This was much better than October's 3 total payouts. And December is going to be an awesome month with 12 payouts in my FI portfolio...
Money and Finance
A quick diversification thought...
An old post worth reviewing: Warren Buffett on Diversification - 1966
I was reminded of Buffett's thoughts as I was once again thinking about optimal portfolio size for the "know something" investor. If you can consistently find ideas where you make 50% more when you are right than you lose when you are wrong, then even if you are right only 50% of the time, the Kelly Formula would say that you should be making 16.67% position sizes, or a total portfolio of 6 positions.
While I think those odds and payouts are pretty conservative for the investor that really puts in the work and has a developed a good process, even being more conservative and betting 1/2 Kelly would yield an optimal portfolio of just 12 positions. Considering most of us are looking for traits that give us better than 50/50 odds of being right, and potential upside vs. downside ratios much higher than the above example, I think a portfolio composed of 6-12 core positions also adds some protection for the difficulty, or impossibility, of estimating odds and precise payouts.
Of course, the odds and payouts change as prices change, and certain things may be being bought or sold over time, which could lead to one having a few more positions. But if you are fully invested in things that meet the general purchase criteria for most value investors, and if you are willing to put in the significant effort required to deeply understand each investment, then a portfolio of 6-12 core holdings seems about right to me.
And I think the most common danger area with having this kind of concentration--among the things that one has some control over--is being wrong about the downside risk in each investment, and so that analysis is probably especially important. As Alice Schroeder wrote about Buffett: "He will pass on huge upside opportunities if he can't get downside protection..." Or as Howard Marks often says, if you avoid the losers the winners will take care of themselves.
- Reddit Amas...
I don't think I ever posted the Alice Schroeder one. And Malcolm Gladwell did a new one today. Link to: Alice Schroeder's reddit AMA Warren is a master of time management. He knows how to ease people off the phone without making them feel dismissed....
- Warren Buffett Quote On Filters
As I've previously mentioned (HERE) how important I think filters are in deliberate practice and achieving expertise in investing, this quote from Warren Buffett during yesterday's Berkshire Hathaway Annual Meeting really struck a chord with me:"Charlie...
- Notes From The 3rd Annual New York Value Investing Congress By Marcelo Lima
Notes from 5 speakers: http://blog.valueinvestingcongress.com/2007/12/-.....-Mark Sellers at the 3rd Annual New York Value Investing Congress by Marcelo Lima - Mark Sellers of Sellers Capital spoke at length about the Kelly Criterion (you can read all...
- What's Your Weight?
No I'm not asking you to divulge your body weight, although if that will help you with any weight loss goals you have feel free to do so. The weight I'm referring to has to do with your portfolio. I think we all understand the importance of...
- Dividend Update - November 2012
November was a decent month for dividends with 5 companies paying out in my FI portfolio but none in my Roth IRA. This was much better than October's 3 total payouts. And December is going to be an awesome month with 12 payouts in my FI portfolio...