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Theme parks that have stocks on the NYSE or Mutual Funds?

I want to have 20-30 stocks, mutual and index funds in my portfolio. What is the most (on a percentage basis) I should have in any one?

  • Arguably, if I want to have money in an S&P 500 Index Fund, that  could be more than one individual stock.  In addition, stocks like Berkshire Hathaway are really mutual funds in disguise.  For example, if I want to have half in stocks and half in mutual/index funds, would I be crazy to have, say 30% of my portfolio in an Index fund?  Please provide links to  articles or the basis of your recommendation.

  • Answer:

    Check the Wikipedia article, http://en.wikipedia.org/wiki/Modern_portfolio_theory There are mathematical formulas you can use that are supposed to optimize how much of each item you should have in your portfolio.  The individual items can be single stocks, single bonds, stock funds, bond funds, mixed funds, etc.  All that is necessary is some prior data about returns of the individual items and correlations between the items.  You can do these calculations with Excel, although you need to collect, clean and format the previous data.  And you need to know some Excel functions.  The optimum amount of each item depends on that item and the other items in the portfolio.  Because, the collection of past histories is assumed to be the best available predictor for the future behavior of that portfolio.  The goal of the optimum portfolio is to maximize gains if one item in the portfolio goes up while the others plod along.  And to minimize losses if one item goes down.  Assuming you can't predict the winner or loser in advance.  A portfolio of 30 or so stocks spread over multiple industries, multiple market segments, and even multiple countries provides some protection against, "company risk," "industry risk," "segment risk," and "country risk."  But it doesn't even claim to protect against "market risk," which is the risk that the whole market drops.  When the whole market drops, the correlations between the items in your portfolio suddenly become large and positive.  Predictions based on past correlations fail.  This happened in 2008-2009.

Ed Caruthers at Quora Visit the source

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I think this is called deworsification.  Most mutual funds do this to protect on the downside.  You put in ~2% into each position and sell out if it hits 5% (you have doubled your position and you exit). It's a good strategy, but you won't beat the S&P500 with this strategy.  Thus, just go with a few of the index positions. I recently was fighting this mindset and sold a small portion of my Tesla stock when it more than doubled to $67.  I kept most of it (70%) but as you can imagine this is the downside of deworsification. The upside is that you won't lose your shirt.  My Tesla position is probably ~30% of my portfolio.  If that stocks gets hit I will take a big loss.  BTW, Berkshire is more like a PE fund than a mutual fund.

Faheem Gill

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