30/70 asset allocation is the best overall?

[RunningBum]

I want to play, too.

LOL, you must know Frank, that's how he made his money to start with!

 

[eta2020]

.

The yield on his investments throws somewhere around 2% a year, which is a bit over half of what he needs.

Nice story, isn't it?

Franky effed up..... That 2% should had supplied 100% of what he needs.

 

[clifp]

As you wrote, it's very important exactly which 100 stocks they are. And, in recent decades, a very meaningful portion of equity returns has come from a relatively small number of "superstar" stocks--if you didn't happen to include the next Microsoft in your 100 stocks, you might very well lag the market average by a considerable amount--more than a few basis points.

Here's a good article from Wm Bernstein. I doubt many of the fundamentals have changed since he wrote it in 2000. From the article:
And, as a bonus, those digesting the article get to see the word "kurtoskewness" in use, which is a treat in itself!

Nice find Sam. Still I just double checked and it appears that Dell lost more than 75% of its value from 2000 to when it got taken private in 2013. I certainly agree in the accumulation you don't want to miss out on the superstar stocks. The question is in the withdrawal phase are you better off sacrifice the superstar stocks to also avoid owning the hundreds of Dell competitors that are out of business. (While most never went public scores did).

There is virtually no chance that any of the stocks in any of the dividend portfolios, mine, DVY, IDV, or Josh Peters are going to be 100 baggers in the next 25 years. On the other hand I don't need it. After the nice run up of the last few years a 2.5-3% dividend yield plus inflation protection is all I really need. Certainly some of these dividend payers will have tough going some will even go bankrupt, but the vast majority will still be around in 30 years.

So why spend money on 1,000 stocks+ in the hopes of owning the ten superstar stocks?

 

[RunningBum]

Franky effed up..... That 2% should had supplied 100% of what he needs.

Franky got tired of working for the man so he ER'd before he could hit a 2% withdrawal rate, and he likes his bourbon too much to cut expenses.

 

[Running_Man]

As you wrote, it's very important exactly which 100 stocks they are. And, in recent decades, a very meaningful portion of equity returns has come from a relatively small number of "superstar" stocks--if you didn't happen to include the next Microsoft in your 100 stocks, you might very well lag the market average by a considerable amount--more than a few basis points.

Here's a good article from Wm Bernstein. I doubt many of the fundamentals have changed since he wrote it in 2000. From the article:
And, as a bonus, those digesting the article get to see the word "kurtoskewness" in use, which is a treat in itself!

***Warning I never did like Bernstein and I am not kind to him in the following post, this in no why reflects the respect I do have for Samclem***

This article by Bernstein is incredibly poor. He is comparing returns of a 10 year one way up market that ended in an upwards terminal velocity and when a stock is added to an index after the fact it is considered as if it was there the whole time and stating "well that's why unweighted shows 24% gains and cap weighted 18%" as if that difference is nothing, then proceeds to say that 24% is what the "market did" even though Dells gains of 238% in 2000 38% in 2001 and 180% in 2002 and 81% in 1994 and 69% in 1995 and most of the 207% increase in 1996 as Dell was added to the S&P500 on August 29, 1996 3/4 of the way through the period and while does not include in the index for comparison purposes by "market cap" he goes forward and includes them to say the "market" return is 24% then compares all the other portfolios against this total distortion of what a market is.

No the truth is the market returned 18%, and 68 of the 98 portfolio's met or exceeded this benchmark. But all of these portfolio's are bulldung as it should have been 15 stock portfolio's picked randomly each year, preferably based on some criteria or shadow of an investing idea, but at least they should be stocks in the actual index in the year of the comparison.

This is Bernstein data mining and stating a totally fallacious conclusion. This is equivalent to constructing a portfolio in a 10 year down period and excluding all the companies that went bankrupt during the 10 years because they were not there at the end and then claim that owning all the stocks individually uncapped is so much better than a cap weighted index and see by having more opportunity to miss the really bad stocks you will do much better.

Taking the 10 year bull market of the 1990's and coming to conclusions about long term portfolio building & performance is ludicrous and that he leaves this article up is an embarrassing proof of his intellectual dishonesty and probably why in 2008 he went to 25 years worth of cash for his clients, which was based on about the same amount of scientific principles as this article by him.

 

[eta2020]

Franky got tired of working for the man so he ER'd before he could hit a 2% withdrawal rate, and he likes his bourbon too much to cut expenses.

I understand you don't live for ever.

Better to have 2% somewhat guaranteed than 4% that can vanish when next recession comes along.

 

[Big_Hitter]

wow, could you guys overthink this any harder?


not that this is worse than a $50 chump change argument over tax software...

 

[rayinpenn]

Here's a story about a guy, frank ....
Nice story, isn't it?

Great story I hope frank is happy in retirement, lives a long time and enjoys many bourbons...

Most people like frank don't have a portfolio that 'sheds' enough or more than enough to cover their express...but there are a lucky few.. I guess thats why no one allocation formula is best for everyone. My inclination is weight my portfolio heavier into equities because I expect the wife may live a long time after I'm gone. Her grandma lived well into her nineties...the longer the time period the greater the likelihood equity heavy portfolio will outperform fixed income portfolio. In the end time will tell.

At some point grandma moved into an assisted living facility. When we visited her it was like 90 degrees in there, yet she still wore a sweater -guess what was on TV? CNBC! On the table was a composition book to track her dividends. She was the first dividend investor I've ever met.

She was very very successful at it. She too liked a good 'snort' every now and then.

 

[samclem]

So why spend money on 1,000 stocks+ in the hopes of owning the ten superstar stocks?

I can't answer for anyone else, but I do it because:
1) It costs no more to own 1000+ stocks than just 100 stocks, if I use a low-cost index fund or ETF.
2) If there's a chance that a few stocks are going to provide a disproportionately large share of the total market's return, I don't want to miss out on those stocks. It would be possible to miss out on them just through bad luck if I just chose stocks at random, but much more likely I'll miss out on them if I introduce a systematic selection process into the stocks I choose--like picking the ones with high dividend yields.

Stock returns are not normally distributed, the median return is usually well below the average (mean) return. In retirement, the "superstar stocks" may be an important factor in achieving the "market average" annual return I'd like to get.

 

[RunningBum]

I understand you don't live for ever.

Better to have 2% somewhat guaranteed than 4% that can vanish when next recession comes along.

That's overkill. I know some here are at that point, but I think a lot of those people either have great pensions that were worth working for until they were fully vested, or had opportunity to greatly pad the nest egg by working just a bit longer. Frankie wasn't in either category. 4% is cutting it a bit thin, but Frankie, who's a bit mum on giving out actual numbers, is probably closer to 3% than 4%, especially with some fat that could be trimmed and a house that could be downsized.