tag:blogger.com,1999:blog-5465015914589377788.post24931064992442978..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Building Your Own Index with Individual StocksMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-5465015914589377788.post-46417148048748063112013-08-04T16:06:13.940-04:002013-08-04T16:06:13.940-04:00@Gene: Good summary. This is an issue that few i...@Gene: Good summary. This is an issue that few investors seem able to understand.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-77824073231964708362013-08-04T15:29:39.755-04:002013-08-04T15:29:39.755-04:00Hello Michael,
Thanks for answering my query of l...Hello Michael,<br /><br />Thanks for answering my query of last week with a whole post. I think it made for an interesting topic, for sure. It took awhile for me to wrap my head around it, but I think I understand that if (a big if) a smaller number of stocks average the same annual return as a large number of stocks, they will most likely do so with more volatility, which will decrease the compounding annual return. The roughly 0.5% disadvantage the volatility gives versus a more divirsified portfolio could only be overcome by luck, which over the long term becomes less and less likely.<br /><br />I realize I'm just summarizing your post, but just making sure I understand it. Thanks again for tackling this question.genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-30890155175488375942013-08-02T11:57:23.567-04:002013-08-02T11:57:23.567-04:00And to minimize fees! (as well as avoid losses)
I...And to minimize fees! (as well as avoid losses)<br /><br />I have a few units of a index mutual fund that I keep as an exercise in stupidity/while I wait for it to re-surface from the gloomy depths. I bought it about 20 years ago. For the past 2 years it has not gained one dollar. Why? Because of the outrageous fee. Yes, this is a bank mutual fund. If I sold it, I might get enough to take my kids out to lunch, but not with my husband, too, so I'm just watching it with the same repulsed fascination with which I watched a monkey slug caterpillar climb up a chair at the cottage.<br /><br />Ah investing what a hobby!Bet Crookshttp://financialcrooks.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-18228930049638756732013-08-02T10:04:08.155-04:002013-08-02T10:04:08.155-04:00@Martin: I'll stick with the index ETFs to av...@Martin: I'll stick with the index ETFs to avoid expected portfolio losses from inadequate diversification.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-88915672870262869572013-08-02T01:23:23.815-04:002013-08-02T01:23:23.815-04:00I recently found a broker which may help with buil...I recently found a broker which may help with building such a "mutual index fund" They allow you to create a portfolio of 30 stocks and then you can set your desired allocation for every and each individual stock within the portfolio and then you can start investing buying the whole portfolio. They will automatically spread your contributions / investments among all 30 stocks based on your selected allocation. I just recently wrote about the broker on my blog and I think it is a great idea. I would help with your task greatly.Dividend investing Martinhttp://www.hellosuckers.netnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-4460206337406476152013-07-31T14:25:35.801-04:002013-07-31T14:25:35.801-04:00Ah but you're comparing to playing with much m...Ah but you're comparing to playing with much more money than I am risking. I couldn't get to Florida much less play golf with the amount I have at risk! (Luckily I'm a very bad golf player so I don't have to be too jealous.)Bet Crookshttp://financialcrooks.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-878946359085259112013-07-30T20:28:04.534-04:002013-07-30T20:28:04.534-04:00Good post Michael.
I'll continue to invest ...Good post Michael. <br /><br />I'll continue to invest in stocks for some time, but I'm also increasing my positions in indexed products as well since I've got enough shares, in my opinion, in a few Canadian companies.<br /><br />With close to 25 CDN stocks, I'm practically running a large- to mid-cap CDN index though.<br /><br />MarkMy Own Advisorhttp://www.myownadvisor.canoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-40829865434146038132013-07-30T15:24:35.942-04:002013-07-30T15:24:35.942-04:00@Canadian Investor: Of course, adding more stocks...@Canadian Investor: Of course, adding more stocks helps, but it still leaves a portfolio with slightly higher volatility which leads to higher volatility losses. So, I wouldn't try this even with a $1M portfolio.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-63556170744293555062013-07-30T13:22:08.587-04:002013-07-30T13:22:08.587-04:00Tracking the index cannot just mean having the sam...Tracking the index cannot just mean having the same volatility / standard deviation after a year. The returns must be the same day to day.<br /><br />Problem is, of course, a 15 stock portfolio wouldn't resemble the index and returns would not track the TSX. I tried taking a look (http://howtoinvestonline.blogspot.co.uk/2013/06/building-your-own-index-etf.html) at the practicalities of making a portfolio of 26 stocks that would look much like the TSX, mimicking sector and cap-weight representation. It would require quite a big portfolio ($100k plus) and would be a hassle to track and trade to keep in line. CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-11079519900717396312013-07-29T22:23:56.406-04:002013-07-29T22:23:56.406-04:00@Bet Crooks: I think that fun is a big reason why...@Bet Crooks: I think that fun is a big reason why many people pick stocks. I prefer much cheaper entertainment such as traveling to Florida in the winter to golf.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-61713072652801284392013-07-29T17:13:22.295-04:002013-07-29T17:13:22.295-04:00Interesting to see the math proves yet again that ...Interesting to see the math proves yet again that ETFs are best if you want to match the index. We have lots of our savings invested that way.<br /><br />I still like picking stocks, though, but I expect to make less money than if I bought the index. My goals are (a) to have fun (b) to get some pieces in place to have income when we need it (c) to try to avoid some of the volatility of the index by buying ultra conservative investments. Reason (a) is probably the truest reason. : )Bet Crookshttp://financialcrooks.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-1848415464017268222013-07-29T10:26:46.285-04:002013-07-29T10:26:46.285-04:00@Glenn: Good one. Unfortunately for some investo...@Glenn: Good one. Unfortunately for some investors, not thinking about the square of the standard deviation is what leads them to try to construct their own index.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-23277530568114892452013-07-29T10:25:21.575-04:002013-07-29T10:25:21.575-04:00And the #1 reason why you don't build your own...And the #1 reason why you don't build your own index is so you don't have to think about things like "square of the standard deviation". :)LifeInsuranceCanada.com Inc.http://www.lifeinsurancecanada.comnoreply@blogger.com