I don't think PRPFX needs more diversification in it's stock portfolio. That is a sufficient number of stocks. As a shareholder, I hope they keep it this way.
Vanguard's S&P500 index fund did come out in 1976, but "index investing" was a new and unproven concept at the time. It would not have been useful for PRPFX then or now. HB warmed to the idea of using S&P500 index funds instead of leveraged stocks or funds only after index funds had proven themselves in the post-1982 bull market. He did it both for simplicity sake and because he realized there was probably more leverage inherent in the overall market than he had previously thought. But that doesn't necessarily invalidate using a portfolio of well chosen leveraged stocks for your stock market exposure.
Individual Equity Basket vs. Index Fund
Moderator: Global Moderator
Re: Individual Equity Basket vs. Index Fund
Here's my general problem with stock-picking: Even if it can be done, it has to be done with enough effectiveness to overcome the tax-inefficiency of moving out of stocks as the become overpriced (or fairly priced) and into stocks that are supposedly underpriced. If one says "well we pick them and hold them for a very long time" then I'd say back, "then you're not really that great a stock-picker are you, if it takes 15 years for the market to realize that your stock was underpriced and come up to fairly priced."HB Reader wrote: I don't think PRPFX needs more diversification in it's stock portfolio. That is a sufficient number of stocks. As a shareholder, I hope they keep it this way.
More or less, taxes make stock-picking even more difficult than it already would be by a long shot.
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- Thomas Paine
Re: Individual Equity Basket vs. Index Fund
But they aren't picking stocks based on whether they are "underpriced" or "overpriced" like value investors. They merely want stocks that have high betas (i.e., move more than the overall market).
I'm not trying to debunk or devalue the index approach, but to point out that the leveraged stock approach is consistent with the overall strategy. HB was looking for investments with some inherent or built-in (but not from debt) leverage. He discussed both gold and LT Treasury bonds as having this characteristic. As I said, he eventually concluded that index funds probably give you close to the same long-term movement, but without the added work of researching individual stocks or growth mutual funds.
They may have to occasionally buy and sell some of the leveraged stocks, but I doubt it results in much tax-inefficiency overall.
I'm not trying to debunk or devalue the index approach, but to point out that the leveraged stock approach is consistent with the overall strategy. HB was looking for investments with some inherent or built-in (but not from debt) leverage. He discussed both gold and LT Treasury bonds as having this characteristic. As I said, he eventually concluded that index funds probably give you close to the same long-term movement, but without the added work of researching individual stocks or growth mutual funds.
They may have to occasionally buy and sell some of the leveraged stocks, but I doubt it results in much tax-inefficiency overall.
Re: Individual Equity Basket vs. Index Fund
There are plenty of high-beta equity ETFs that PRPFX could use to get the same juice with much higher diversification. Cuggino could certainly use sector ETFs to cover natural resources, REITs, and "aggressive" growth stocks. I'm in PRPFX also but I also think the fund's under-diversified given its asset base.
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SmallPotatoes
- Senior Member
- Posts: 141
- Joined: Fri Jun 04, 2010 10:25 am
Re: Individual Equity Basket vs. Index Fund
Great feedback everyone.
I might be wrong in picking a few stocks to add to my PP, but I just consider this my VP. Bought some BP for my VP back several months and it's done well. Of course if I'd owned before it would have hurt. That's why I have VTI. This is the PP that I rebalance in and out of.
Surley, picking a fee stocks for VP or to add to a PRPFX holding can't be that determental to the PP as a whole.
I might be wrong in picking a few stocks to add to my PP, but I just consider this my VP. Bought some BP for my VP back several months and it's done well. Of course if I'd owned before it would have hurt. That's why I have VTI. This is the PP that I rebalance in and out of.
Surley, picking a fee stocks for VP or to add to a PRPFX holding can't be that determental to the PP as a whole.
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BobS
Re: Individual Equity Basket vs. Index Fund
As I've been slowly moving the portfolio into a slightly altered version of the PP, I split the equity portion in half -
- one half consisting of - world allocation and natural resources mutual funds
- one half dividend paying stocks
- one half consisting of - world allocation and natural resources mutual funds
- one half dividend paying stocks
Re: Individual Equity Basket vs. Index Fund
This seems like a pretty significant variation - the natural resources part will likely correlate with gold. The world allocation will correlate with nothing in the regular PP. The dividend paying stocks will reduce the volatility of the stock portion.BobS wrote: As I've been slowly moving the portfolio into a slightly altered version of the PP, I split the equity portion in half -
- one half consisting of - world allocation and natural resources mutual funds
- one half dividend paying stocks
Not saying this is a bad idea, but it seems like it could behave quite differently than the PP at any rate.