Thursday, October 1, 2009

Sensible Forum Comments

On top is an example of good discussion on a the Share Junction forum board. Question is, can both sides be right.

I agree with Jeremyow, who agrees with Hulumas that a portfolio should comprise 70% core stocks that you hold for very long, and the remaining 30% be on speculative trades.

I do agree that it is almost impossible to buy and hold throughout your whole life. But trading incurs transaction costs and that makes it harder to grow your portfolio. Research have shown if you Sell Stock A to Buy Stock B, you have to ensure that Stock B performance will be double of Stock A, so that your portfolio performance does not suffer.

I also see the 70:30 principle another way. 70% of your stock should be in big market capitalisation companies with good trading volumes. The remaining 30% can be on the small caps that you think are gems. This is because should anything happen, you can liquidate the stocks with better volume. Illiquid gems have an indefinite gestation period before turning up on the general public's radar.

But temp123 points out something very true, that regardless the quality of the company, what was observed was that whoever got in last year, is still in the red. This also implies that most of anyone's portfolio should actually benefit from the flow of cash back into equities. However, we should not ignore the fact that the credit crisis has cause irreparable damage to smaller companies that were significantly leverage.

Therefore, we should get out of the market once we suspect a bear market. How do we spot it? Go read Kenneth Fisher's "The Only 3 Questions That Count".

And when we do get in, we should still do our homework and pick companies with solid fundamentals. These companies might require a cash call here and there, but as we have witnessed so recently, creditors might seek repayment, causing the company to eventually wind up or suspend from trading. This will save us alot of heartache.

1 comment:

  1. Agreed! :)
    Kenneth Fisher's Book is a very good read for anyone who is interested in serious portfolio management.