Armin's Stock Selection

Scot asked he would love to see more blogs explaining the whys and whens of timing and selection. Well, I couldn't find a simpler way of doing that: 20 quality stocks in, very little action whether rebalancing or buying new positions regardless market would suggest otherwise. What do I expect to get out by the end of this competition?First, most probably not very spectacular performance, second, less risk as all of us know the evidence that indicates that a diversified portfolio of securities, for example 20 randomly selected stocks, holds much less risk (measured by the standard deviation of returns) than an individual security. This follows because:
* The standard deviation of returns from a single stock in a portfolio is much larger than the standard deviation of the entire portfolio.
* The standard deviation of returns on a portfolio declines as the number of stocks in the portfolio rises towards 20.
more,
and third, kind of sensation that I haven't tempted any action that could be related to any kind of whether greed, fear or timing.
I know, this approach is both boring and not attractive, but in the same time, I believe,simple, understandable, would be repeated ad infinitum and experiment free.
By the way, I really love when Warrenn Buffett says:" Our time frame is forever" and very curious to know how his time frame might look if it lasts just one second longer! Imagine performance!

Comments: View Comments |  Thursday October 4, 2007