I am rethinking my investment approach. Up to now, I have been a slice-and-dicer mostly with index funds.
This (
Stingy Investor: 8 Graham Stocks for 2010 ) modified Ben Graham approach for picking individual stocks has produced an annualized +11.9% over the past 5 years
I have been comfortable with my IRA. It is well diversified and seems to work pretty well. I am not inclined to change what I am doing here...yet.
However, I am thinking of taking charge of DW's Roth, dumping MUTHX and trying my hand at Ben Graham's approach. The track record over the past 10 years is pretty good relative to the S&P 500.
Ed, are you not working hard enough yet?
What you're proposing is a plan to devote considerable more effort to your investment plans than you've heretofore had to exert. Your first challenge is to screen for the companies, followed by getting to know them, followed by determining an entry point, accompanied by perpetual monitoring, followed by determining when to part ways with them. In the hopes of earning more profits than most people have made during the century's two worst recessions (so far). Everyone's a genius in a rising market-- the time to truly acid-test your ideas (and to live with their results) would have been 2007-2009.
And even more courageously, you're considering doing this with spouse's IRA instead of your own. You could quietly experiment with your own portfolio and selectively [-]lie[/-] boast about your successes while ignoring your not-yet-successes. But no, you're going to compound the challenge by subjecting yourself to the harsh lights and withering reviews of a spouse audit.
Keep in mind that Ben Graham lived & breathed this stuff in academia, including spending a couple hours a day in classrooms jawboning his ideas with guys like Buffett-- and Schloss and Ruane and most of a Valhalla of 20th-century value investors. Buffett has spent hours a day (and evenings and weekends) for over 60 years reading newspapers and trade publications and company SEC filings. He's not skimming the Yahoo! stock quotes and running a few screens. He and Graham and the rest of them spend/spent 99% of their time jogging in place so that they're able to move fast when [-]the world goes to hell[/-] 1% opportunities rise. Looks easy in the retrospective biographies and media interviews, but it's not easily done.
OTOH I, like you, have always looked upon these apparently rational investing concepts and wondered whether I'm good enough to make it work. The answer has turned out to be "Yep, pretty good" but it's... a lot of work. On top of your day job.
So if you're going to spend the rest of your life wondering "What if?" then you should [-]limit the damage[/-] do this with 10-15% of your portfolio. Take a year or even two years to get to know your companies while waiting for their inevitable short-term stumbles into value territory. Get cheap and haggle with limit orders. After you buy, instead of selling on the calendar you should figure when the holding is getting fully priced. When your gains start to overtake your margin of safety then you should mechanically (and unemotionally) take some profits off the table by brutally executing a few sell orders. Or at least sell some covered-call options.
I'm surprised that UncleMick hasn't checked in yet with his comment about testosterone poisoning. This is the only treatment, although I'm not sure there's a cure.
Warren Buffet only produced +6.5% per annum over the same 5 year period. (I would have checked back 10 years but I only have access to my Vanguard on-line stuff.) Is Berkshire Hathaway too big now?
Anyone else? Has anyone else experience with a Ben Graham approach? Would you consider a small adventure in individual stocks by this method? Not considering betting the farm on this.
Buffett would castigate a five-year shareholder as a short-term dirty market timer.
Is Berkshire too big? Compared to what... [-]Phillip Morris[/-] Altria and Exxon?
It's too big to garner the eye-popping returns you're seeking. However it's quite capable of allowing sleep-at-night security with index-beating recession-proofing returns and an occasional double-digit year. It also doesn't have to contend with high management fees, fund bloat, and excessive turnover. Better still it has a great board (which will preserve the company's spirit long after Buffett's departure), it's riding a nice long-term wave from the share split and the S&P500, and when Buffett is out of the picture it has the prospect of paying a good dividend.
"Knowledgeable investors" and "credible analysts" (there's a couple oxymorons) feel that the company is no longer selling at blue-light special values, but it's also not yet fairly valued. I plan to do a little rebalancing at $85/share and some real [-]partying[/-] hard looks at $90/share. I would feel uncomfortable owning it at over $100/share without at least buying some put options.
As for individual stocks, a Ben Graham approach is probably the least dangerous method of screening. Take your time, don't feel rushed to buy, and keep up at least 5-10 hours a week of research/monitoring. If you feel that's too much effort (or just too hard to do) then you're not doing it right. There's a reason that so many people are index-fund investors.
One point is, could I do better than MUTHX? I have already, in my own IRA. I guess the real question is, what do I replace Mutual Shares with? That needs to be done regardless.
Cheaper mutual shares, or cheaper exchange-traded fund shares in major indexes?
You might find some happy hunting grounds among the stocks in the Dogs of the Dow, the Dow Dividend Achievers ETF (DVY) and the S&P600 Small-cap Value ETF (IJS). Note that many of them are sold by "value investors" when their rising stock prices cause their dividends to decline from 5% to around 2-3%.