Position Size

I received an email from a reader asking about position sizes in his 401k. The account size is not huge but big enough for some real diversity. The reader shared that he has 32 positions. The largest holding as a very good OEF that comprises 9% of the portfolio and the smallest position is a CEF that captures a particular effect that has a 0.5% weight. He wanted to know if positions under 5% were worth it. The short answer is yes. I told the emailer that the half a percent weight might be a little light. I doubt that such a small weighting could capture whatever effect that is trying to be captured. He gave me only two names out of the 32 but both were funds. Portfolios with a lot of funds need to be diligently monitored for overlap. I realize this can be tough to do for timeliness but do what you can. My starting point for assembling a portfolio is to decide what weightings I want in each sector. I then go sector by sector using common stocks, ETFs or a combo of both. I then tweak those by factoring in things like the sector weightings in, for example, the India Fund for clients that will own that or the water ETF for people that own that. This can be harder to control with broad based funds. As for weightings with individual stocks, most of the time I weight a stock at either 2% or 3% of a portfolio. Google was an exception to the low side at about...

Not As Flat As I Thought

For the week so far the S+P 500 is down 14 points (as of 3:45 EST), a little over 1%. I did an interview earlier in the week where I opined that the week would be very dull with most folks crossing their fingers and toes just hoping to close out the year where it is. Although most of the drop for the week was on one day I have to say I did not expect this big a move. NYSE volume, as of ten minutes ago, was below 900 million shares. As for the first couple of weeks of 2006 I think it could go either way but it seems like more people expect a negative start to the year. If that is the consensus then maybe January will start out pretty...

PIPDX

A reader asked for my opinion about this fund. This is tough to figure. The fund is mostly comprised of bonds but its benchmark is the EAFE index. It uses leverage to buy futures and uses the remaining cash to buy bonds. According to Yahoo Finance it has about 73% in bonds. I did not find duration info on either Yahoo or Morningstar. This year the fund is way ahead of EFA and last year it lagged it by 6.8%. I think the bond component is the driver. A good bet on bonds (bet may not be a fair word) and the fund does well, a bad bet and the fund will do poorly. If rates rise, as is usually the case in a Fed tightening cycle, I would think the fund would be hurt. I think it might be less risky (if done properly which is a big if) to replicate the strategy on your own. An individual bond will go back to par. A fund has no par price it must revert to. A big difference between this and the PLMDX I looked at the other day is that PIPDX’ strategy could be done on your own, and be less risky) PLMDX’ strategy is not something that could be captured with any liquidity or breadth of currency. I don’t think my bank has Hungarian florint NDFs readily...

Russian Index

A reader left a question about Russian indices. I did not fully follow the question but the benchmark index is the RTS. You can get a little bit of info on MarketWatch as ticker...

Hire An Adviser?

Earlier there were some comments left about the dilemma faced about whether to hire someone to help manage money and whether it becomes necessary at some point as a function of old age or other factors. Since this addresses what I do for a living, I may be biased. The vast majority of people will not hire someone to help them, this seems quite clear to me. I don’t have a tremendous amount of insight here but I think it really just boils down to a couple of things. The first thing is trust. Not so much trust of not stealing (I don’t think theft happens very often and if your assets are custodied at a brokerage firm it won’t be a problem) but trust that the person cares about his clients, which is probably a bigger problem than theft, and that once you find someone that does care that they will be around for a while. One thing that may not be very important is performance. If you have saved enough money and that money captures most of what the market does, you will grow your assets sufficiently enough to pay the bills and keep up with inflation. It is only logical that any adviser will beat the market some years and lag it others. I’m sure there are exceptions on both sides but keeping close with a philosophy that you can be comfortable with is what I think is most important. I think the last paragraph, while my general take, may not be that simple to do as far as finding someone. I would urge anyone that...