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Diversifying our stock portfolio(s)
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The article linked in the OP is somewhat misleading. The businesses quoted may pay out the biggest amounts but if you look at MSFT, APPL and TSM as random examples, they are yielding around 1% or less. They are growth stocks and the yield is irrelevant. Fine if you bought them a few years ago at a fraction of the current price as the effective yield would be several times what it is today. You wouldn’t buy them for income now.The fascists of the future will call themselves anti-fascists.0
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Diversifying a stock portfolio is not a given good. It won't make you richer. In fact, since there is transactional cost, it will make you slightly poorer.1
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ZingPowZing said:Diversifying a stock portfolio is not a given good. It won't make you richer. In fact, since there is transactional cost, it will make you slightly poorer.0
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Agreed.
So, any number of individual investors could pool their holdings but it would make no difference to the aggregate value.0 -
Bessembinder, Hendrik (Hank), Do Stocks Outperform Treasury Bills? (May 28, 2018). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2900447 or http://dx.doi.org/10.2139/ssrn.2900447'Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages. '0
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JohnWinder said:'Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries.
So investment in one individual common stock would probably have underperformed the benchmark (Treasuries). Given this likelihood, and the certainty that buying all XXXX common stocks would have exceeded the benchmark, the question is What is the number of holdings that would make exceeding the benchmark more likely than not?
The answer, surprisingly, is three.
Although personally I wouldn't be comfortable holding less than three stocks, the two held by Langtang seem well suited to his requirements until retirement. If others identify growth stocks that also pay 5% dividends, please let us know.1 -
Langtang said:
Would that be suitable diversification? Is there a better/different way of getting the same results?0 -
Langtang said:Steve182 said:If it's dividends are you're mainly interested in I'm curious why you would keep hold of Chevron rather than looking elsewhere.
You're obviously aware of the double taxation issue on dividends unless they are held in a SIPP?
The shares don't look particularly attractive to me looking at current or forward metrics.
I'm not generally a value or income investor but I do hold DGOC which is a profitable and growing London listed US gas/oil producer. It has significantly higher dividends and more attractive P/E's than Chevron.
DGOC still has double taxation issue of course, but my SIPP resolves that problem
As I mentioned in another reply:
To put it into context, my FIL got the shares whilst working with Texaco - half paid, half free, and they've performed really well for him over the years so I thought, if it ain't broke, don't fix it. I can see the diversification aspect, but just feel that they're doing OK and are doing what we need them to... All I need to do is to wrap them in some kind of tax efficient way.
The example I gave in my reply was another US oil/gas producer who is paying almost double the dividends of Chrevron, who's shares are cheaper and who's prospects, based on recent and forward numbers look favourable to me at least. Not everyone understands company accounts and I'm definitely no Buffet. However if you are investing vast sums in shares you should have a basic grasp at least. If you don't, it really is a case of pinning the tail on the donkey.
You mentioned 2500 shares I recall so at $100 that's $250,000 in Chevron if I'm, not mistaken? That's probably the most I would consider investing in a single company if I had a £1,500,000 portfolio.
I would be looking to split my portfolio between a minimum of 12 different companies spread across several different sectors. As things stand mine is split between 24
“Like a bunch of cod fishermen after all the cod’s been overfished, they don’t catch a lot of cod, but they keep on fishing in the same waters. That’s what’s happened to all these value investors. Maybe they should move to where the fish are.” Charlie Munger, vice chairman, Berkshire Hathaway0 -
Langtang said:Would it be better to sell some of the Chevron shares and to buy some of those listed above
If you really can't make up your own mind about whether to hold or sell, you can always sell half of the holding.0 -
JohnWinder said:Bessembinder, Hendrik (Hank), Do Stocks Outperform Treasury Bills? (May 28, 2018). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2900447 or http://dx.doi.org/10.2139/ssrn.2900447'Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages. '1
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