EPTOn November 24 2010 15:02 itzme_petey wrote:
So would a "best of breed" strategy work just as well? Best of breed meaning, selecting companies with the best balance sheets and best products poised to be successful in the next coming years. Buying an index funds means that not only am I buying AAPL but also RIMM and a slew of other companies on their way out the door. Can't I just accept that I will take on non-systematic risk and rid myself of "loser" stocks? What if I buy into 15-20 best of breed stocks? Won't that reduce my non-systematic risk significantly?
Do you mind covering "alpha" next? I been reviewing my portfolio and it seems that I out-perform the market everyday. If S&P goes down 1%, I'm only down .5% and vice versa. Is it realistic that this performance will last or is this a hot streak?
So would a "best of breed" strategy work just as well? Best of breed meaning, selecting companies with the best balance sheets and best products poised to be successful in the next coming years. Buying an index funds means that not only am I buying AAPL but also RIMM and a slew of other companies on their way out the door. Can't I just accept that I will take on non-systematic risk and rid myself of "loser" stocks? What if I buy into 15-20 best of breed stocks? Won't that reduce my non-systematic risk significantly?
Do you mind covering "alpha" next? I been reviewing my portfolio and it seems that I out-perform the market everyday. If S&P goes down 1%, I'm only down .5% and vice versa. Is it realistic that this performance will last or is this a hot streak?
geometryb is pretty much correct. Personally I don't even like thinking about things in terms of alpha so I probably won't talk about it. Depending on how many data points you have, there's probably no real way to tell if you have positive alpha or if you're lucky. If you're +0.5% every day, then that means you're +125% in a year. If that's the case, then please start a hedge fund and I will invest.
As for good/bad companies, AAPL is currently 9x the market cap of RIMM, so if you were to buy a reasonable index fund, you'd be buying 9x more AAPL anyway. If you want to pick your 15-20 individually, you certainly can. The issue is you'd be paying more broker fees for something that will end up performing quite similarly to an index fund.
