DIY individual stock fund
Posted: Mon Sep 23, 2019 2:45 pm
I've been mulling for a while getting out of holding total-market ETFs as my stock holdings in my PP and setting up my own fund of perhaps 30 to 50 individual company stocks. For a few reasons: to cut out the middleman (avoid counter-party risk and fees, albeit tiny), to experiment with an equal-weighted portfolio (rather than market cap-weighted), and to have a bit of a thrill with managing such a thing (while maintaining the PP philosophy). There's been some discussion here before about DIYing a stock fund, and I'm curious if anyone here has set up their own and/or has any ideas on which strategy to use to select the holdings. I'd like to be as unemotional/mechanical as possible, and minimize trading/fees.
Here are some potential strategies [and my thoughts on the wisdom of adopting them]:
(1) Pick the Top 30-50 stocks by market cap [overweight tech, low dividends, less room to grow, but exciting and newsworthy companies]
(2) Randomly select from SP500 (or Wilshire 5000), like every 10th (or 100th) one or by random number generator [unemotional, diversity of sectors and market caps]
(3) Mimic a famous index or fund, like DJIA or Wellesley? [let someone else pick the stocks, established, diversified]
(4) Select equally among the large/small-cap growth/value quadrants, say 10 each? [choose unemotionally from established funds/indices, but high risk of picking lemons?]
I think all four strategies have their merits, but I'm drawn to the latter three. The biggest problem I can foresee is what to do when the whole PP needs a rebalance out of stocks -- it would require a lot of selling. So perhaps this approach could be adapted as just a fraction of the PP stock tranche and also hold, say 30-50% VTI, for rebalancing purposes.
What do you fine people think?
Here are some potential strategies [and my thoughts on the wisdom of adopting them]:
(1) Pick the Top 30-50 stocks by market cap [overweight tech, low dividends, less room to grow, but exciting and newsworthy companies]
(2) Randomly select from SP500 (or Wilshire 5000), like every 10th (or 100th) one or by random number generator [unemotional, diversity of sectors and market caps]
(3) Mimic a famous index or fund, like DJIA or Wellesley? [let someone else pick the stocks, established, diversified]
(4) Select equally among the large/small-cap growth/value quadrants, say 10 each? [choose unemotionally from established funds/indices, but high risk of picking lemons?]
I think all four strategies have their merits, but I'm drawn to the latter three. The biggest problem I can foresee is what to do when the whole PP needs a rebalance out of stocks -- it would require a lot of selling. So perhaps this approach could be adapted as just a fraction of the PP stock tranche and also hold, say 30-50% VTI, for rebalancing purposes.
What do you fine people think?