Winning Value Portfolio Outperforms
Last January, I unveiled the Winning Value Portfolio for Real Money subscribers. The idea was simple: I selected 10 securities I deemed attractive investments and created an equal-weighted portfolio among the 10 candidates. The objective was even simpler: Hold this portfolio until year's end with making any changes.
To many, such an approach was unconventional. A 10-security portfolio was too concentrated and not being able to sell out any losers seemed to defy what many are taught to do as investors. I believe the approach, however, holds its own advantages. Excessive diversification rarely, if ever, reduces risk but can often diversify away returns. A 20-stock portfolio would have been satisfactory, but I would have been adding filler stocks to come up with 20 good bets. I also believe that the rapid selling and replacement of stocks in a portfolio guarantees higher frictional costs without any guarantee of better returns. A one-year holding is a relatively short period for any business: If you have carefully selected your investments, unless that business has run afoul of the law or you realize you have missed a very important variable or the stock price has quickly moved up, then such a business should be held for at least one the three years....214 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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