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Re: Is this enough diversity?
Old 03-30-2006, 08:42 AM   #21
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Re: Is this enough diversity?

Bob, I think the fundamental problem here is that you can define growth and value in a number of different ways (PE, PB, EV/EBITDA, price to kumquat ratio, etc.). Depending on the definition you use, a given equity might be growth, value, or in the middle. The different growth and value index purveyors use different definitions, which further muddies the water. I suspect that's why the quant finance people are happier to look for vectors, correlations, etc. Its (at least theoretically) cleaner.

So while I definately think that buying value stuff is a good idea, I think there are inherent limitations to the "value index fund" approach. Better than a sharp stick in the eye, but not perfect by any means. I suppose the alternative is to go with an active value manager like Wellington, Dodge & Cox, or Third Avenue, but that has its problems too (asset bloat, tax inefficiency, management fees, etc.). I am happy to buy individual securities, so I have no problem with sticking to value and avoiding some of theproblems of funds, but I recognize that this requires more of my effort and leaves me less diversified/more risky.

I also suspect that acheiving style purity requires one to accept higher trading costs and lower tax efficiency. Why? Say you (or your fund) buys a company that is down on its luck and is an obvious value play. Things turn around after a while and the stock recovers. In fact, the business starts humming again and the growth investors appear. What do you do? Keep the position and tolerate some style drift, or sell and pay the taxes and trading costs? Most of the time, I have chosen to sell, since I am a dyed-in-the-wool value investor and I am not comfortable with valuations that growth investors are willing to pay. I broke that rule with PLMD, which I bought when they were being raided by the FBI (it was really cheap). The stock is now trading at lofty levels and continues to perform well, but it is a significant departure from the rest of my portfolio. We'll see how it works out, but Iwill probably trim my exposure some time this year.
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Re: Is this enough diversity?
Old 03-30-2006, 09:50 AM   #22
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Re: Is this enough diversity?

small cap stocks out-performance is probably due more to value factors and bull market cash flows than actual size. Large companies in poor condition have smaller cap, their recovery gives the extra return. Dollar weighting returns shows high cash inflow late in a bull market, but the average investor gets less.

Dichev “What were investors actual historical returns” paper

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Re: Is this enough diversity?
Old 03-30-2006, 09:57 AM   #23
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Re: Is this enough diversity?

Quote:
Originally Posted by rmark
small cap stocks out-performance is probably due more to value factors and bull market cash flows than actual size. Large companies in poor condition have smaller cap, their recovery gives the extra return. Dollar weighting returns shows high cash inflow late in a bull market, but the average investor gets less.

Dichev “What were investors actual historical returns” paper

I am happy to let the academics debate such things without my input. That's why I told my prof I had no interest in that whole finance PhD thing.

In the meantime, I will continue buying smaller companies that are temporarily down on their luck or just out of favor with the market. Lotsa bargains out there right now...
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Re: Is this enough diversity?
Old 03-30-2006, 10:20 AM   #24
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Re: Is this enough diversity?

Brew

Keep those cards and letters coming - I'm over half way through killing off my DRIPs and transferring to my Vanguard broker account. Next comes selective selling. Then male hormones and perhaps - heh, heh, heh - dare I say new individual purchases.

Works out that after 12 yrs - IRA, now early SS and pension can carry the ER load with a little Roth for old age insurance.

Thusly - the individual stocks are hormonal and a little lagniappe.

heh heh heh heh heh heh - beats golf - at least for me.
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Re: Is this enough diversity?
Old 03-30-2006, 10:29 AM   #25
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Re: Is this enough diversity?

Quote:
Originally Posted by unclemick2
Brew

Keep those cards and letters coming - I'm over half way through killing off my DRIPs and transferring to my Vanguard broker account. Next comes selective selling. Then male hormones and perhaps - heh, heh, heh - dare I say new individual purchases.
Assuming that was a veiled hint for suggestions...

- Most any auto parts company has been trashed. Pick one or more and poke around. I like the guys that either have low/no leverage and pension/OPEB overhang (so they can wait out the ugliness), or have something unique in what they do. Eyeing SUP at the moment.

- Lotsa insurers available on the cheap. Bermuda reinsurers are in the catbird seat to charge obscene amounts for coverage, yet many are trading around book value. I also like CGI as a high div, low volatility sleeper.

- PPD. One of a kind company that gins out lots of cash. Currently selling for roughly 10X what I think they will make this year and very likely to either do a large buyback or sell the company/go private in the next year. Given the huge short interest, this would provide lots of fireworks to watch. Have also been paying divs lately, but it is a "we'll pay out if the stock price is too high to do buybacks" opportunistic div.
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Re: Is this enough diversity?
Old 03-30-2006, 12:29 PM   #26
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Re: Is this enough diversity?

Thanks

Vague?? I thought it was a brash plea for suggestions.

Starting my watch/buy list right now.

Anymore?

I still lean toward div stocks - with increased empasis on div growth.

heh heh heh
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Re: Is this enough diversity?
Old 03-30-2006, 12:34 PM   #27
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Re: Is this enough diversity?

Quote:
Originally Posted by unclemick2
Anymore?

I still lean toward div stocks - with increased empasis on div growth.

heh heh heh
One I have held for years: AF. Not cheap right now. Wait until the current take-over chatter dies down and the premium goes out of the stock price. Attractive at 28, IMO. Check out the div growth over the past 5 years.
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