Hi everyone
(especially William):
I read William's
e-mail to us (see below if you didn't read it) with great interest. I
found some points he made to be quite good.
While on the
outset having ten stock picks, coming one each from ten different value
investors, sounds like it would improve one's returns, it probably would have
the effect of lowering but smoothing out returns. If, as Mario Gabelli
says, making 90% of the S&P return with 48% of the volatility is a huge win
(I am in his camp that it is), than this would indeed improve performance.
Specifically, ten different people would consider value ten different ways (even
if each of us were students of Bruce Greenwald), much like ten chefs with the
same recipe will have the same dish taste differently. Some of the ten
would be better value analysts than others. If you were the best you would
be getting lesser analysis from the bottom analyst of the ten. Still,
since each one would value companies differently you would avoid a
concentration in a valuation method that may be out of favor for years to
come. For those of you who weren't doing this in the 1990's, even the best
value picks did nothing while growth companies soared for
years!
As to the amount
to invest in each pick, I was struck by William's decision to invest ALL HIS NET
WORTH in one company. Unless God Himself is giving you next year's Wall
Street Journal, anyone can be WRONG! Hopefully, in the last 20-years or so
(I have been doing this professionally since June, 1981) we have learned
that no matter how strong a company's balance sheet looks, we have no way of
knowing if any figures we are looking at are accurate (see Enron, WorldCom,
First Chicago Bank, etc. Even Penn Central in the 1970's and First
Executive Life in the 1980's went bankrupt with a AAA rating from Moody's and
Standard & Poor's). It seems to me that if one is managing
money for other people, the first goal is to not put the client in a position
where their financial life could be destroyed and then secondly try to make
money. Kind of like a doctor takes an oath to "First, do no harm."
The most concentrated we ever get, no matter how enthusiastic we are about a
company, is to put 3-5% into any one company. One stock collapsing, if it
is 20% of a portfolio, can set back returns for years. Plus, God forbid
that stock blows up during a bull market, clients will NEVER forgive a money
manager for having negative performance during a bull market.
Still, William's
idea has merit.
Joe
Monaco
Joseph A.
Monaco, Ph.D.
President -
Monaco Capital Management
Raymond James
Financial Services
Member
FINRA/SIPC
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Hello,
I am new to this group but i would like some feedback on a strategy I have
employed for 2 years now, most value investors would be diversified between 3
and 10 stocks as suggested by warren buffett.
however if you only picked 1 stock at a time, your best pick, deeply
researched, would your returns not exceed those of many value investors who also
outperform the market. hypothesis, if ten value investors picked 1 stock each,
their best pick and another ten value investors diversified as per above i am
convinced the 1 stock group would perform the other stock group as a whole, i
believe warren buffett did so well in his 21 to 26 age period of life because he
used a similar system to this and he did huge research, any feedback on this
theory would be greatly appreciated as this group is likely to be way more
succesful in the market over the coming years than the average person. p.s. i
have put this theory into practice over the past two years with some interesting
results, my stockpicking isn't of true value investing, my first pick late
September 2005 Ditech Networks at €7.50, it fell to €6 but i sold at €11 5
months later for a 40 gain, this was picked for sudden drop in revenue and
shareprice reacted the same, one of ben grahams philosophies although too pricy
for him, Pick 2:
Pilgrims pride Corporation in Febraury at 21.35, fell to €20, sold 2 months
later at €26 for 20% gain, outbeak of avian flu, nothing to do with company
performance i picked chiquita at 17 after this and put in one fifth of my net
worth, dropped to 13.50 and put in full net worth, dropped then to 12 and stayed
around 12-14 for long time, recovered to 16 after ships sold, sold all, made
about 20% in a year and a half but lost on dollar Pick 4: Ditech at €7 went to
€10 tried to sell at €10.20 in two after i bought, price dropped currently at
€3.44 at time of writing this.
still hold
Please discuss
