Morningstar has a "Coffee-Can" portfolio posted this morning. The term came from the story (told years ago by Bob Kirby of American Funds fame) about the man who secretly piggy-backed his brokers recommendations. He invested a few thousand dollars in each stock, put them in a coffee can and forgot about them. He acted on the buy recommendation and ignored the sale recommendation.
As one might expect, he lost money on many of the stocks. On the other hand, the big winners were extraordinary. His coffee-can portfolio was worth millions.
My approach to investing is nothing more than a modified coffee-can approach. I buy stocks for the long-term. However, I am a realist; I expect to make good selections only 60% of the time. This means 4 of 10 stocks I buy perform poorly. Of the six that I hold long term, I expect one to do very well and another two do extraordinarily well. The most important modification I make to the coffee-can model is that I "weed the garden".
"Weeding the garden" is very important. One has to be very careful. One small slip and you will pull-up or chop off a corn stalk. You want to get rid of those stocks that are performing poorly but in some instances you should "re-plant" the same stock. If you still believe in the company, you should do a tax swap back into the very same stock.
In the short-run there is more luck than skill involved; in the long-run there is more skill than luck. With time and effort, you should eventually have a beautiful garden of stocks with almost no weeds. Lets say you gradually buy 100 stocks and that 40 of them do poorly. The winners offer tax deferred gains and the losers offer tax deductions. You will probably lose 20% on the average weed. Therefore you take the proceeds from the 40 weeds and buy 32 more stocks. Of those, about 13 will be weeds. You reinvest in 10 to get 6 more great stocks and 4 weeds. By the time you own 100 stocks great companies, you will have bought and sold about 55 stocks that were poor selections. You will have received tax benefits on the loss of the 60 poor selections. You will be very surprised at how well a few have done. Chances are good that you will be very surprised by which one of the 100 made you very rich. Even with a lot of 20% losses, I expect your total annual return using this strategy will be better than 12% compounded; those who play the game well will grow their portfolio by 15% or better.
The best way to buy 100 stocks is over a long period of time. It takes time for the winners to "bear fruit" and for weeds to recognizable. Another point to remember is that the garden can't grow until it has been planted. Plant 20 stocks quickly and gradually weed and plant from a sound base.
BUY THE BULL! THERE IS AN UNUSUAL DIVERGENCE IN YIELDS. THE EARNINGS YIELD ON STOCKS IS CURRENTLY HIGHER THAN THE BOND YIELD. THIS IS A WONDERFUL OPPORTUNITY TO MAKE BETTER THAN AVERAGE RETURNS.
As one might expect, he lost money on many of the stocks. On the other hand, the big winners were extraordinary. His coffee-can portfolio was worth millions.
My approach to investing is nothing more than a modified coffee-can approach. I buy stocks for the long-term. However, I am a realist; I expect to make good selections only 60% of the time. This means 4 of 10 stocks I buy perform poorly. Of the six that I hold long term, I expect one to do very well and another two do extraordinarily well. The most important modification I make to the coffee-can model is that I "weed the garden".
"Weeding the garden" is very important. One has to be very careful. One small slip and you will pull-up or chop off a corn stalk. You want to get rid of those stocks that are performing poorly but in some instances you should "re-plant" the same stock. If you still believe in the company, you should do a tax swap back into the very same stock.In the short-run there is more luck than skill involved; in the long-run there is more skill than luck. With time and effort, you should eventually have a beautiful garden of stocks with almost no weeds. Lets say you gradually buy 100 stocks and that 40 of them do poorly. The winners offer tax deferred gains and the losers offer tax deductions. You will probably lose 20% on the average weed. Therefore you take the proceeds from the 40 weeds and buy 32 more stocks. Of those, about 13 will be weeds. You reinvest in 10 to get 6 more great stocks and 4 weeds. By the time you own 100 stocks great companies, you will have bought and sold about 55 stocks that were poor selections. You will have received tax benefits on the loss of the 60 poor selections. You will be very surprised at how well a few have done. Chances are good that you will be very surprised by which one of the 100 made you very rich. Even with a lot of 20% losses, I expect your total annual return using this strategy will be better than 12% compounded; those who play the game well will grow their portfolio by 15% or better.
The best way to buy 100 stocks is over a long period of time. It takes time for the winners to "bear fruit" and for weeds to recognizable. Another point to remember is that the garden can't grow until it has been planted. Plant 20 stocks quickly and gradually weed and plant from a sound base.
BUY THE BULL! THERE IS AN UNUSUAL DIVERGENCE IN YIELDS. THE EARNINGS YIELD ON STOCKS IS CURRENTLY HIGHER THAN THE BOND YIELD. THIS IS A WONDERFUL OPPORTUNITY TO MAKE BETTER THAN AVERAGE RETURNS.
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