haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
AltaRed said:So you are certain you can do this without any Enrons, WorldComs, etc.? Even the auditors, fund managers and analysts didn't catch these. I hope you are right but I wouldn't bet a dime you won't have a flameout or two. And it is a whole lot more significant in a portfolio of 6-20 stocks than it is in an index.
I have done this for may years. And you are right; I have had two bankruptcies among my investees, and several take-unders which caused permanent losses. This can be avoided, but only if you stick with very established and trouble free companies, and stay with large enough companies that management take-unders in bad markets are not a problem.
But if you are a decent analyst you will have fewer of these than an index fund. The ones you do have however will make a bigger hole in your portfolio than they will make in an index. I looked at but did not buy Enron or WorldCom; many funds as you know did hold them.
So if you have say 40% safe fixed, any belly-flops will occur in the 60% of your portfolio that is exposed. If you never invest more than 5% of that 60% equity allocation going in to any position, you are never risking more than 3% on any initial position. Through success, any one position may get much larger, but that is a different, rather pleasant problem that you can make your own guidelines about. I tend not to add money to a stock in the fashion of momentum traders.
So actually, by far the greatest drawdown risk to the above equity portfolio is not from individual company risk, but from general market risk which the indexer is running anyway- and maybe actually accepting even more of it.
This doesn't bother me at all, and I consider myself careful and risk averse.
Ha