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So I'm new and learning about stocks and assembling portfolios. I was wondering how some of you guys put your portfolio together. I understand that you got to check out the financial statements of companies etc. but I mean like do you guys actually calculate all of the covariances and try to assemble a portfolio that way?

I'm reading about this stuff but having a bit of trouble.

Like I know what portion of my funds I would like to put in different sectors, countries, stocks, etc.
 

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It would be interesting to know what portion of investors actually do their own research by pouring over corporate financial statements, interviewing management, obtaining inside information, listening in on all of the internal phone calls etc. etc. and what portion just rely on the opinion of others who may or may not have spent all of the necessary time and effort to do the research for them.

Then, you have to know when to buy and when to sell which involves ongoing due diligence to make sure that you are not invested in an Enron or a Nortel etc. This involves keeping up with company news and financial results as well as keeping abreast of what the markets and competition are up to.

And then, in order to be properly diversified, you have to maintain this due diligence on a minimum of ten to fifteen different stocks.

It's all well and good if you have the time, knowledge, resources, and inclination to do all of this but, at best, I only have the first commodity but not enough of that to spend many waking hours doing the necessary research.

That's why I restrict my research and investing mainly to broad-based ETF's because I consider that more practical for my particular circumstances.

To each his or her own.
 

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Start by understanding your risk tolerance. It is a function of your investment knowledge, ability to sleep at night, when you will need the money, how much money you have and your income.

There is a comprehensive risk capacity survey here. It will give you a recommended asset allocation. It is American, so it is weighted to US equities and uses US mutual funds. However you can use it to construct your own asset allocation to include Canadian equities and mutual funds and ETFs that are available in Canada.

Read up on Modern Portfolio Theory. The idea is that risk and return go hand in hand. However, you can minimize your overall risk by diversifying into assets that have uncorrelated risks.

Read up on Fama and French. When you examine results from enough decades, there appears to be a bonus for taking on risk in Value and Small Cap stocks.

Depending on your available assets, you can diversify...
Asset Class: stocks, bonds, commodities, art...
Regions: Canada, US, developed, emerging
Sectors: financials, energy, consumer staples, consumer discretionary, health care, telecommunications, utilities, materials, industrials
Style: value vs growth
Size: micro, small, mid, large cap

Aim for low costs. Don't let fund management fees, or brokerage fees eat away at your hard earned money.

If you only have a few thousand available, you can diversify at low cost with the TD e-series funds in an online TD or TD Waterhouse account.

With tens of thousands, ETFs would be appropriate.

With $50k or more you could look at holding some individual stocks. Don't let a sector occupy more than 20% of your portfolio; don't let a single stock take more than 5%.
 

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It can be difficult and confusing...but not as hard as it seems.

And CERTAINLY not as hard as so called "financial advisors" would lead you to believe, many of whom are clueless.

It all starts with your own persoanal position....how big your portfolio is, what stage in life you are in, what you need or will need the mopney for, and when you will need it.

Then there is your own risk tolerance to consider...studies show losing money hurts twice as much as making money makes you happy.

You also must always invest with tax considerations in mind,,,,,,its not just what your investmenst earn.....its also about what you keep after taxes.
Generally any interest bearing stuff should be registered accounts......dividend payers, and growth stocks should be in a cash account to take advanysge of the better tax treatment.

figure out a good asset mix, such as:

50% stocks, ( preferrably soild dividend growers)
30% bonds, ( investment grade corps and govt)
5 % high yield "junk" bonds
10 % reits, gold , materials etc ( riskier, but more upside potential)
5 % cash


you can get all of the above thru ETF's in Canada or international
You should have some international exposure to be properly diversified

If you want to buy it and forget it,,,just buy the broadest range ETF's from VANGUARD, which are also the cheapest/

VT.........Vanguard whole world stock market minus US
VTI........Vanguard whole US market

In Canada, where we live, you can get the whole markets or any part through Ishares or Claymore.

Of cousre being Canadian the fees are higher, as usual.

One last thought....NEVER BUY MUTUAL FUNDS...just fees for no reason

Rememebr that all this depends on your own situation etc....for instance you shouldnt put a big slice of your money into stocks at all, if you are saving for as house for next year or your son's education for next year, etc. Markets can move dowm FAST, as we saw recently.

Use common sense

Good luck
 

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There is a comprehensive risk capacity survey here. It will give you a recommended asset allocation.
Interesting risk tolerance survey. It strikes me as being highly biased towards EMH and MPT which is fine if you know how to answer the questions to get the desired result, otherwise the bias may well result in a less than optimal AA. Notwithstanding the afore mentioned nits, this questionnaire has delivered the most conservative portfolio recommendation I have ever received from multiple sources with the standard responses I give to these sorts of questions.

Thanks for posting the link, I appreciate the perspective it provides.
 

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I learned the hard way...

and it's too bad for a relatively smart guy (with lots of "fancy book learnin'"), to have done so poorly for so long.

Thru my own analysis, and with help from the posters here, I learned a KEY lesson to personal finances:

MUTUAL FUNDS ARE FOR SUCKERS :mad:

The only people that make any money from them? the people that sell them for a living.

In the last few months, I've gone from negative returns, to a good/solid/conservative return from selling off the majority of my mutual funds, and moving to ETFs, REITs, and some blue chips. I still have *some* $ in mutual funds (for now...it's the stuff that's SOOO under water it didn't make sense to sell. I'm watching them carefully).
 

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Some naive investors still follow their financial services salesperson's advice and invest in managed mutual funds with their inherent high fees.

However, over time, they will learn just like many of the rest of us had to.

Oftentimes, we grow too soon olde and too late schmart!!:(
 

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Its difficult for people who have a hard time understanding investing etc, to see that "financial advisors", are indeed just salespeople.

I was amazed at how many of these "advisors", I have talked to over the years didnt really have a clue about the capital markets and were just pushing products that made them the most money with little regard to how those products might affect their clients futures!!

Many times these "advisors" didnt even understand the products they were pushing, which was evident to me after a few questions.
Of course they knew what their commissions and management fees would be easily enough.

Remember....it's YOUR money...you worked to earn it and save it.
Put a little effort in investing it, and protecting it and making it grow.
NOBODY cares more about your money that you.

Read a few financial books, like the "Little Book Of " series...that are very easy to read. "The investment Zoo", is another good book.

Also just read " How a Second Grader Beats WAll Street"......
it is exellent, easy and fun to read, very informative ( esp for a beginner), and even tells you exactly what to buy to put together a good portfolio.

Anybody, even without too much knowledge, can invest in a few broad ETF's and do better for themselves, by saving all the hidden fees buried in financial products like mutual funds.

However there MUST be a basic understanding of investing and asset allocation first, and many people's eyes gloss over when you try and explain some of these things to them. I.ve seen this myself personally.

Thats why the "financial services" industry in Canada will live on.

Anthony
 

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From an article in today's Toronto Star: "I don't buy mutual funds, period. I'm not willing to give up 2.5 per cent of my returns, compounded over 20 years, to mutual fund companies. In the long-term, the difference between an index fund and a mutual fund is, in fact, the MER. Bottom line? The mutual fund managers you're paying for are not even meeting the index. So, why pay them?"
 

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So I'm new and learning about stocks and assembling portfolios. I was wondering how some of you guys put your portfolio together. I understand that you got to check out the financial statements of companies etc. but I mean like do you guys actually calculate all of the covariances and try to assemble a portfolio that way?

I'm reading about this stuff but having a bit of trouble.

Like I know what portion of my funds I would like to put in different sectors, countries, stocks, etc.
If you are unsure about how to do this then DONT DO IT. if you want to be in stock market, simply buy the index ETF (XIU) and enjoy the country's GDP and more (theoratically). if anyone thinks they can do better than the index then you wont see them on these boards. There will be a lineup of people offering their money to him/her.

Cheers
 

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Sometimes, you can actually beat the indexes over the long term by selecting and trading individual stocks.

It's called blind luck!!

Sometimes, but none too often, you can also win a lottery through the same blind luck.

Rational reasoning would tell you to just invest in the indexes and be done with it. When all is said and done, it is your chosen asset allocation rather than the selected investments that will most determine your long term investment success.

However, that won't stop many investors from spending countless hours on research and due diligence and timing their purchases and sales trying to beat the indexes.

Their time would be better spent watching cartoons!!

Buy and hold broad-based ETF's using model portfolios found at www.canadiancouchpotato.com

And prosper!!!
 

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Agreed, over the long term a good ETF mix may be hard to beat.

The clear message is that the fees you save are basically why ETF's beat mutual funds. and there is NO reason why any investor shouldbuy mutual funds, except to allow your "financial advisor", ( and I use the term loosely), to buy a new BMW every 2 years.

I own several ETF's , but as a dividend investor, The ETF's I would buy must pay good dividends too.

I also like to pick solid blue chip stocks in non-clyclical industries that meet my criteria for high yield, low payout , low debt, reasonable div growth, and good ROE.

I pay a small commission once, do not pay any fees thereafter, and basically hold them for the long term....hopefully forever.

Sometimes I do wonder if I shouldn't just buy Berkshire Hathaway, close my eyes, and let Warren Buffet invest my money for me.
BRK does not pay a dividend , unfortunately, but almost every one of their holdings do pay a dividend, so if Buffet invests those divs wisely for you,you end up with a bigger capital gain, at the end,,,which would be much much better tax wise too.

I did read where Buffet's personal stock holdings , outside of Berkshire, pay HIM personally something like $ 40 million dollars a year in dividends!!

He bought those many years ago...so its clear to see that Buffet is a dividend investor too!

Anthony
 
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