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  • Managing Your Portfolio - Weightings 59 comments
    Jan 21, 2013 4:07 PM

    There has been a lot of discussion on how you should weight your positions. In my opinion, this is one of the most important aspects of portfolio management.

    Part of the weighting issue also includes how many positions you should hold.

    One of the most valuable lessons I learned when I was swing trading, was position sizing. Swing trading is an exercise in taking many small to medium profits, over and over again. It was also an exercise in managing the losses as well.

    I recall a time when I had 5 or 6 successful trades in a row, felt confident, the market was rising, and I found a sure winner. I over weighted the position and I lost money on the trade. The worst part was, that trade cost me all of the profits I earned on the previous 5 or 6 trades.

    I had an 80% success ratio on picking winners, but it was wiped out due to one bad trade. From that point on, every position was the same dollar amount.

    As a dividend growth investor, this concept has saved me more than once. Most of us are knowledgeable about selecting positions. We know what to look for. We are confident our selections will follow through and provide us the returns we expect over the long term. Most of us are experienced enough to know that doesn't work in reality. Therefore, I prefer to insure myself against a case of "the stupids."

    BP was my "stupid." EXC was another.

    I owned BP when the rig in the Gulf exploded. At the time, I didn't fully understand the impact it would have. I knew there would be ramifications. I knew the share price would suffer. What I didn't know was how much damage that spill was going to cause.

    In retrospect, I should have sold that day, but I didn't. I'm sure some of you have experienced that "frozen deer in the headlights" syndrome at some point in your investing career.

    I thought that BP was financially sound enough to weather the storm, and they were. I thought as long as they continued to pay the dividend, I would reinvest the dividend at lower prices, thus building my position for the eventual turnaround.

    I was further encouraged by the fact that the BP dividends were one of the largest contributors to the UK pensioners. Surely BP wouldn't screw them!

    BP announced the dividend was safe and in fact, declared the dividend. So, I kept the position on auto pilot. Just days before the dividend was supposed to be paid, the CEO of BP was called to the principals office (Mr. Obama). They pressured BP into discontinuing the dividend.

    At that point my position was down 47%. I didn't know how long it would take to recoup that loss. I had no idea when the dividend would be reinstated again, if at all. I decided to lock my losses in. I sold the position.

    A lot of people would look at that 47% loss and determine they couldn't take it. A lot of people would think they were forced to hold until they could earn their money back. ... That's crazy thinking! And here's why.

    It has to do with position sizing. At the time, due to the number of positions I owned, BP only represented 4% of my total portfolio value. I lost 47% of that. The loss to the portfolio was only around 2%. Think about it! ... A 2% loss is nothing in the grand scheme of things. It's the total portfolio value we must think about. It was much easier to take that loss based on that. The only real damage was my ego. I can get over that in time. However, it took no time at all to make up that 2% portfolio loss.

    The more over weighted your position is, or the higher the percentage of your portfolio that position represents, the higher your losses are going to be, and the longer it will take you to make up for them.

    I think I can promise you, at some point risk is going to meet adversity. Count on it!

    Rather than focusing on the gains, I focus on minimizing the losses. If I do that successfully, the gains are going to be there.

    EXC was another "stupid" that I experienced. When I purchased it, EXC had a nice yield and they had a nice dividend growth string going. There were several double digit dividend growth years. Then came the CEG merger. EXC had to freeze the dividend to make the merger work.

    I was okay with that at the time. The yield was north of 5% and I thought I'd simply reinvest the dividends and wait for EXC to assimilate the CEG merger and then get back to business. Then came a series of set backs.

    Reaping the benefits of the merger was taking longer than expected. The State of Illinois was being difficult with rate increase requests. Power prices were dropping and hedges were coming off the books and EXC had to renew at lower prices, thus lowering revenue. And then the biggie. After assuring us that the dividend was safe, the CEO stated they may have to lower it in about 6 months.

    None of this was considered by me in advance. I didn't know this was how it was going to play out.

    As soon as the CEO warned about the dividend, I was out immediately! By this time, my capital gains had disappeared and I was now down 19.34% on the position. I took the loss and moved on.

    Instead of focusing on the 19.34% loss, EXC at the time was actually under weighted because I wasn't going to add to the position while the dividend was frozen and they were still trying to work with the CEG merger. The loss to my total portfolio value was just 0.14%. Wheee! Much ado about nothing.

    So in closing, my message is this. When you have a sizable loss, don't focus on that one company, measure the loss against your total portfolio value. If you own enough positions, and you have them sized properly, you'll see that your big mistake is actually a small one. Correct it before it does more damage, not just to your portfolio, but to your psyche as well.

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Comments (59)
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  • Tremendous post chowder and a great topic which is not widely understood.


    The importance of minimizing overall losses in a portfolio is so important that ignorance can nullify years of work spent building a portfolio. When you're retired and can no longer add significant funds to a portfolio the less likely a big loss can occur the better.
    21 Jan 2013, 05:11 PM Reply Like
  • This is a really helpful blog report chowder. It clarifies in practical, relevant terms the significance of keeping an eye on portfolio weighting, which I tend to overlook. It also speaks well to moving on after an error in judgment, correcting a mistake, and sticking to your formula....Warrior Code. Thanks for the post.
    21 Jan 2013, 08:29 PM Reply Like
  • Hi Chowder,
    Great post! Maybe you should start contributing too!


    All the best!
    Kang Wei
    22 Jan 2013, 09:36 AM Reply Like
  • Author’s reply » Kang Wei,


    I am contributing! ... Ha!
    22 Jan 2013, 01:38 PM Reply Like
  • Love your blogs, Thank you! Have a question for you, Master Chowder: If you enter in every position with the same dollar amount, and its market value increases, at what percentage do you take your profits, or does the percentage(say 5% to 70%) matter less than the weighting.
    Grasshopper Linda
    22 Jan 2013, 11:00 AM Reply Like
  • Author’s reply » Grasshopper, I rarely sell due to overvaluations, but my next blog is going to spell out some of the selling scenario's I've executed in the last couple of years, including market value increases.


    I'll try to get it written tonight, tomorrow by the latest.
    22 Jan 2013, 01:38 PM Reply Like
  • Thank you and I look forward to it. I had a 9% return for 2012. I trimmed back on my T, VZ, and MO positions, in the fall, and put the money back into other positions to build and diversify. I am now up to 13 positions with 2 being speculative and very small %. Looking at my weightings on all and considering fees and taxes, I can trim some more off of T, VZ and MO in February to balance to equal weightings and purchase a new position. I am very grateful for the wisdom and the experience you and so many others share. There is so much to learn, I am starting late, but its a start. I like the idea of smaller weightings spread out over more positions, your logic makes so much sense.
    23 Jan 2013, 09:52 AM Reply Like
  • chowder...


    You made your case for smaller positions from both the perspective of loss of dividend income and capital gain. "I pity the fool" who doesn't heed it and believe somehow that their superior stock picking prevents such a thing from happening. It's all a matter of time.


    I look forward to the next one on selling.


    Take care
    22 Jan 2013, 01:49 PM Reply Like
  • "Rather than focusing on the gains, I focus on minimizing the losses. If I do that successfully, the gains are going to be there."


    Chowder, as always, your simple words reveal a most profound truth. I can't wait until your next contribution!


    22 Jan 2013, 02:20 PM Reply Like
  • Nice article Chowder, keep them coming.


    Is 4% your recommended position size, 25 total positions?


    22 Jan 2013, 04:50 PM Reply Like
  • Author’s reply » No Chump. I have close to 50 positions in my portfolio. At the time of the BP disaster, I wasn't holding as many positions.


    Project $3 Million only has 27 positions. I have a watch list of another 20 positions. I will add one or two eventually, but they have to be under the right conditions. If not, I'll keep adding to the 27 positions already in that portfolio.


    You younger people don't have to worry about 30 or 50 for now. Your portfolio will grow over time. We old geezers need to worry a little more. ... Ha!
    22 Jan 2013, 05:54 PM Reply Like
  • I have 21 DG positions
    17 are equal weight
    2 are over weight (about 1.7 times an equal weight position)
    2 are under weight (about 2/3rds of an equal weight position)


    I feel pretty good with that. By the end of the year I will rollover a couple of accounts into our IRAs and pick up another 20 or so positions
    22 Jan 2013, 09:02 PM Reply Like
  • Chowder: Thanks for the wake up call. I have too few positions in my wife's IRA, which is a relatively small account. Apart from being vulnerable to large potential $ losses, I would feel a tremendous responsibility for mismanaging her account.
    22 Jan 2013, 11:29 PM Reply Like
  • Thanks Chowder, A common sense program that makes sense.I have some work to do. Thanks Again, Barry
    23 Jan 2013, 07:49 PM Reply Like
  • I might have to write me one of these here instantaneous blogs.


    I read Chowder and paid attention.


    That would be the short version
    23 Jan 2013, 07:58 PM Reply Like
  • Chowder, your philosophy has influenced my strategy. I always ask myself what would happen if one of my positions were to go completely bust, could I live with the consequences? I look at percentage of portfolio as well as percentage of income stream. Right now, I have 29 positions, but it has taken me a couple years to get here.
    24 Jan 2013, 01:28 PM Reply Like
  • Author’s reply » It takes time to build the portfolio up with positions. Do what you have to do.
    24 Jan 2013, 03:15 PM Reply Like
  • I now have 24 positions. 19 of them range between 3.7 and 4.5%


    Three are purposefully overweight (AAPL, KMP and WEC) and those range from 5.1 to 6.8% of the portfolio. Three are purposefully underweight (CVX, GE and POT) and those range from 2 to 2.9%
    15 Feb 2013, 08:34 AM Reply Like
  • I have 100+ positions quasi-equal weighted (see I usually invest dividends in new positions rather than increase existing ones and control fees (


    I kept and still keep BP (it is ~ 1% in my portfolio) because dividends were played by politicians. IMO it isn't always smart to sell at dividend cut (
    27 Jan 2013, 12:59 AM Reply Like
  • Hi Chowder, I'm here too! Great blog..truly appreciate it. I was stuck on how to set up 3 accts, 2 non taxable and 1 taxable, and not over complicate the process. You commented to just set up the three as one. This helped me out so much. I kept the 8 best of breeds that overlapped, diversified with other great stocks and it all adds up to a max 3% base position.
    Looking forward to future blogs.
    27 Jan 2013, 11:34 AM Reply Like
  • Author’s reply » Hi mico. Keeping it simple is my motto. ... Ha!


    Glad I was able to help you solve your process.
    27 Jan 2013, 12:53 PM Reply Like
  • Great blog! This was a very helpful guide. I currently have 30 positions, keeping them equally weighted makes a lot of sense for injury prevention. I have a lot of work to do.
    4 Feb 2013, 10:34 PM Reply Like
  • Hi Chowder,
    Like others, great stuff and thank you! I have only recently found SA (a few weeks ago) and am soaking up info like a sponge. I wanted to further mico's comment above about multiple accounts. We are in our early 40's and in the accumulation stage (and I'm referring to knowledge as well as assets). I manage 2 Roths and will also be opening a cash (taxable) account so as to have 3 total. So far, I have been treating the 2 Roths as 1 account as I build our core portfolio (i.e 12 different core stocks, with 6 in each in each account). The cash account will essentially be for retirement as well.
    So then, say you were holding 30 stocks, would you have 10 in each to keep it simple? If you were holding say 2 or 3 stocks within a sector, would you put 1 in each account, or all 3 from a sector in one account?
    Similar question with weighting... Say each of your Roths were $50K and the taxable was $20K giving you $120K total. Would you set your 30 positions at $4K each, or something else? Would the 1 account being taxable make you treat your weighting different? How would you determine which stocks to place in the taxable vs. the Roths at this stage of the game?
    I feel like I'm over-thinking something simple, but I sure would appreciate any thoughts or resources you'd be willing to share. Sorry for what are likely elementary questions for most folks...
    Thank you for all the knowledge you share.
    12 Feb 2013, 02:40 AM Reply Like
  • In addition to Chowder's response, here are some thoughts to consider as you choose what holdings in which account...


    My accounts are not near the same balance, so I don't try to make any rules about "10 companies in each." I too follow roughly equal dollar amounts to each company, and sometimes sell some of a big gainer to capture some of the gain, and use the cash for either a new purchase or to add to an existing that is not so pricey at the moment.


    I prefer to keep all of a particular company in one account. This avoids receiving multiple notifications for company actions and makes it easier should I need to sell or take other action with that holding.


    I prefer to have as disparate a mix as possible in each account. This gives me a greater chance to have some experiencing significant price appreciation and others not so much in each account. This means more stability in my account values compared to all good or all bad in a single account. It also means more opportunity for me to sell part of a high flyer or take its dividends as cash and use the proceeds to shore up a weaker sibling. It is not uncommon for positions to reverse in a year or two, and so I see-saw my balance up first on one company, then on another.


    Finally, I violate each and every one of these ideas in every account. I do consider them, and these are my preferences, but every decision is made to select the best alternative at the time.


    For example, last fall I purchased WAG in two accounts because the time was right and I didn't have enough cash for a full position in any single account.
    12 Feb 2013, 10:05 AM Reply Like
  • Another consideration is when you need the income. My taxable account is much larger than my IRA as I plan on retiring sometime in the next year or two. If the bulk was in my IRA, I couldn't retire for another 11+ years. I see you have Roth IRAs which treat early withdraws differently - not sure if dividend income would be counted as contribution or investment earnings.
    12 Feb 2013, 02:08 PM Reply Like
  • @Bum, re. Roth, '''dividend income would be counted as contribution or investment earnings.'''


    Not contribution. :)


    One strategy for IRA withdrawals for an early retirement (and avoiding the penalty) might be to start doing a conversion every year of Traditional to Roth funds.


    Each year you will need to live off of and pay the taxes from non-Traditional-IRA funds, otherwise you'll pay an additional 10% penalty. But after 5 years, converted funds are considered to be Roth contributions.


    So if you have taxable funds to live on (or existing Roth contributions which can be withdrawn tax free), then the strategy would be to convert up to your tax bracket is full or a year's worth of expenses from Traditional to Roth. Pay the taxes and live on your taxable or pre-existing Roth contributions.


    Then 5 years later, that converted amount will be considered as "principal" (or contribution) and can be withdrawn tax free.


    If you repeat this conversion every year (into a different Roth every year), then in the 6th year you'll be able to start using the 1st year's converted funds. The 7th year you could use the 2nd year's conversion, the 11th year the 6th year's, etc.


    This way you deplete your traditional IRA starting early, but at the rate you decide and sheltering the money into a Roth. But at the same time, creating a source of funds to live on outside of the Traditional IRA, without paying the penalty for early withdrawal.


    It seems like it could work and comply with all the IRS rules... Thoughts?
    13 Feb 2013, 01:44 AM Reply Like
  • Can you please explain why it would have to be a different Roth every year?
    13 Feb 2013, 08:34 AM Reply Like
  • AgAuMoney,


    If dividend income in a Roth is considered investment earnings, then it's subject to early withdrawal penalties so it does a DGI that retires early no good. They would either have to pay penalties or liquidate assets to get "contributions" out. A lose lose imo.


    My plan consists of a taxable account that generates enough income to cover living expenses, convert my Traditional IRA to a Roth over the first 5 or 6 years of "retirement" and get a nice bonus income stream when I hit 59.5.
    14 Feb 2013, 12:22 AM Reply Like
  • a different Roth every year:


    The way I read the IRS documentation, the 5 year clock on a conversion is a lot easier to deal with if you do not mix different 5 year clocks in the same account.
    14 Feb 2013, 11:54 PM Reply Like
  • '''If dividend income in a Roth is considered investment earnings, then it's subject to early withdrawal penalties so it does a DGI that retires early no good. They would either have to pay penalties or liquidate assets to get "contributions" out. '''


    No, you put $5000 in, and then the first $5000 out is "contributions."


    You put $500,000 in, and the first $500,000 out is "contributions."


    It doesn't matter if you never sell a single holding. That's how the money is counted. It's the rule.


    But the next dollar out after contributions is "earnings" or "investment return." It doesn't matter if it that precise dollar came into your account as dividend income, or if it was the entire remaining value of the first lot of stock you purchased after the company filed bankruptcy.


    It's the amount put in (contributions) vs the amount that comes out.


    If that is the question you were asking earlier, I misunderstood and unintentionally misled as I was answering a different question... The dividend income does not add to or become contributions, because "contributions" is a legal term for money coming in to the account.


    If you put in $5000, and now you have an account holding stock worth $6000 and $500 cash from dividends, your total contributions are $5000. Not $5500 by including the dividends. But you can take out $5000 by selling $4500 worth of stock combined with the $500 in cash. The entire lump counts as the return of your $5000 contribution and leaves you with $1500 investment return remaining in the account.


    Hope that helps.
    14 Feb 2013, 11:55 PM Reply Like
  • AgAu,


    Thanks for the clarification.
    15 Feb 2013, 12:22 AM Reply Like
  • Author’s reply » Hello Jantis,


    I think you've asked some good questions. I think portfolio placement and how we manage these portfolio's makes the difference between success and mediocrity.


    First things first.


    I look at the various accounts as one. The whole of the portfolio is what I focus on. I want to try to keep each position as equally weighted as possible. It's okay if some are moving ahead quicker than others, I'll fill in the laggards as I go along and bring them up to full weighting. I do hold positions in multiple accounts. It's the total dollar amount I track.


    So, to answer your question about $120K total, I'd try to equally weight everything with $4K each, regardless of the type of account.


    Those of us who have children know that each of them have different qualities. Do we treat them any different? Do we show favoritism towards some and not others? That's how I look at my investments. I want to treat each of them as equally as I can. There will be times when one gets a little more attention than the others due to what's going on, but over the long run, you allow things to equal out.


    If you own any companies that pay dividends and they are taxed at ordinary tax rates, as opposed to qualified rates, then they need to be in your Roth. REIT's come to mind here! Their dividends are taxed at higher rates than other companies. So shelter them!


    If you are interested in MLP's, they belong in a taxable account. Their distributions are mostly considered return of capital (ROC) and therefore, aren't taxed. You don't need a tax deferred investment in a tax deferred account. Place it in a taxable account and let it work for you there.


    I generally place my highest yielding companies in tax deferred accounts. That way, I get most of the dividend going back to work and creating more income, as opposed to paying taxes.


    I place my lower yielding companies in the taxable account to help minimize taxes.


    I don't think you are over thinking the equity placement issue. There's a place for everything, and everything in it's place.


    Feel free to call on me with any additional questions or any need for clarification.


    Best regards.
    12 Feb 2013, 07:34 AM Reply Like
  • And then, when one of your kids stops making their quarterly (hopefully monthly!) contributions, you kick em to the curb, even if it means taking a loss! Sorry, I had to.


    I would suggest, further, that if you can get more into your tax deferred accounts, do so. Obviously there are limits to what you can contribute, and when you hit those limits, you would consider your investment choices for the taxable account contributions, e.g. REITS or non-municipal bonds.


    Also, I don't think there should be much concern with keeping your two Roths (or the three accounts together) equally balanced at this point, because there is not much risk that your broker will go bankrupt and take all your money with you. SIPC insurance should cover all of your assets (if your accounts are $120k). See and other such google search results. That said, with G-d's help, your portfolio will BLOW PAST the SIPC limits, and you can start planning now by more equally dividing your accounts. So, in a nutshell, I've said nothing and listen to chowder!
    12 Feb 2013, 09:20 AM Reply Like
  • So I just want to be clear in regards to the weight concept in a portfolio. You if you have 120k to invest and you like 30 stocks. Each stock will have a 4k allocation. Then on a quarterly basis, you will take profits on the out performing stocks and redistribute them to the lesser performing stocks in the portfolio?
    11 Aug 2013, 01:10 PM Reply Like
  • Author’s reply » Yes and no. If I have 120K to invest, and I want 30 companies, I will start all of the companies out at 4K each. I do not re-balance quarterly, and sometimes not even annually.


    I prefer to let my winners run. However, and this is important, I'm still in the accumulation phase and that means I'm still adding cash to the portfolio. Rather than sell off part of my winners, I will take the new cash and bring the laggards up in equal weighting one at a time.


    In the distribution phase, when I'm no longer adding new cash to the portfolio, I will look at an annual or bi-annual re-balancing strategy, as opposed to quarterly. There are too many trading costs involved to re-balance quarterly.
    11 Aug 2013, 01:17 PM Reply Like
  • Okay, I know what my weightings are, roughly.


    I'll go into Excel and figure it out exactly sometime today
    12 Feb 2013, 10:15 AM Reply Like
  • Thank you to each of you for the feedback and confirmation. I find a place like this amazing to see people so willing to share their knowledge and experience so freely. Good stuff. I've always believed we reap as we sow.
    Placement of certain types of investments is especially interesting. Man, I love when things can be kept simple and they make sense. Thank you, Chowder for the thoughts on that.
    AgAuMoney, fair point on trying to keep some diversity within each account. I take it that you might try to spread out stocks of same/similar sectors between accounts (i.e. VZ and T in different accounts for example)?
    Chowder, I've seen elsewhere that you highly recommend the book, "The Single Best Investment" by Lowell Miller. I love to read and will check out his book. Just curious, is it more of a book about general dividend growth investing and why, or does it drill down into how to nuts and bolts, or understanding company fundamentals?
    I have done my fair share of technical analysis as I've traded options/spreads for a while now, but I never paid much attention to the companies behind the tickers. It is mainly charts and volatility. I understand a lot of the fundamental discussions but have never really learned how to interpret the info well myself.
    Somehow I feel like I've hopped a fence to see what the pasture looks like on this side...
    Thanks again.
    13 Feb 2013, 02:04 AM Reply Like
  • jantis,


    The book "Warren Buffett and the Interpretation of Financial Statements" is a big help to me when it comes to understanding company fundamentals. I actually use a majority of the metrics discussed in the book for my "durable competitive advantage" company ranking software.
    14 Feb 2013, 12:28 AM Reply Like
  • @jantis, '''fair point on trying to keep some diversity within each account. I take it that you might try to spread out stocks of same/similar sectors between accounts (i.e. VZ and T in different accounts for example)?'''


    Exactly. However I tend to hold more silver and gold in my accounts, and am comfortable with more risk than is my wife. So in her account I tend to go more safe. I have Polaris, she has P&G. She also provides some input and wants or rejects things... I have tobacco in my account, she has Hershey. I have Home Depot, she has UPS. But I do like having a variety in each account so that each account is more stable and has that opportunity to rebalance between what's up and what's down. So I have CEF, GDXJ, T and WAG, she has CVX, GDX, JNJ and TTM. etc.
    15 Feb 2013, 12:18 AM Reply Like
  • Author’s reply » jantis, in my opinion, there should be a law that every dividend growth investor needs to read The Single Best Investment. I just wrote another article last night explaining the mind set that it takes to be a dividend growth investor and the concepts and principles I apply are a direct result of that book.


    Here's a link to the article:

    13 Feb 2013, 06:46 AM Reply Like
  • Good recommendation Chowder, I'm almost through it, and can see why you like it so well.




    14 Feb 2013, 01:52 PM Reply Like
  • Chowder, I read the book, to me, Invest for dividends is is the most important aspect of investing. I will be buying dividend stocks instead of tax free bonds. Thank you, Barry
    28 Mar 2013, 11:32 PM Reply Like
  • let's say your core portfolio of stocks are all equally weighted. how should one weight non-core stocks? sometimes I'll pick up a few shares of a stock on a dip, if I think it's being unfairly punished by an earnings report, etc. I'm not sure how it will do, but the value investor in me wants a stake in it. I've done this with NKE, YUM, etc. As a percentage of my portfolio, how much do you recommend I allot towards those stocks?
    21 Feb 2013, 08:14 PM Reply Like
  • I'm curious how chowder (and other experienced people will answer, but I'll give it a go, too.


    Are these companies you want to hold for a long time, albeit it not as "core" holdings? Or are they what you envision as a quick capgain?


    It probably depends a lot on what you consider a "position." If you're entering small "core" positions with $1,000, let's say, I don't think you can go much lower than that for an ancillary holding- I assume you're commissions will take a large bite out of any return. However, if you're investing $5k at a shot, you can reasonably take 1/3-1/2 that amount and put it into a more "value" oriented approach without it weighing you down too much or getting eaten by commissions.


    If the latter, I suggest having a small percentage of your portfolio relegated to "speculation," since that is essentially what trading in and out for relatively quick capgains is. Once you have this percentage set, divide it by a few so that you can play this game several times at once. I personally like doing this, since it seems almost too easy. But it might be, and I might get burned real bad...
    21 Feb 2013, 09:54 PM Reply Like
  • Author’s reply » >>> let's say your core portfolio of stocks are all equally weighted. how should one weight non-core stocks? <<<


    It depends on what you are buying.


    If you are speculating with a company like PBI, EXC or FTR, I would say no larger than a half position, not that I'd be interested, but for others, that's up to them.


    If you are purchasing INTC or LMT, which are financially sound companies and possess the same financial characteristics as your core positions, then I would hold a full position. In fact I do with LMT and INTC. I just may not build them as much as my core positions going forward due to their cyclical nature. I might even peel off shares as I go or sell altogether, it just depends on what the market brings. But, I have no problem holding full positions at this time.
    22 Feb 2013, 07:28 AM Reply Like
  • I consider INTC and LMT to be core stocks within my portfolio. with non-core stocks, I'm referring to stocks that don't currently have a high yield or fit the DG stock profile of a company with a history of dividend growth...some are more oriented towards capital appreciation, some may currently have low yield but high DGR, some are more cyclical plays, etc. they range from BAC to CAT to F to NKE and YUM. none of them are stocks with falling earnings like the companies you listed above.


    do you think 70/30 is the right ratio in terms of dollar amount? core vs non core?
    22 Feb 2013, 12:45 PM Reply Like
  • Author’s reply » If that is what you are comfortable with, that's what you should do. There isn't a set number other than what you think is right.
    22 Feb 2013, 01:03 PM Reply Like
  • while I can see the importance of not overweighting any one position, I'm not sure I see the harm in underweighting positions. I see a lot of investors bringing underweight positions up to parity just because they like all their percentages to be equal. but if an underweighted stock I own becomes overvalued before I can buy more of it, I'd rather open a new position in an undervalued stock. so my portfolio may not look pretty--some of my 50+ positions have a 4% weighting, while others take up .5%, but I'm not stressed about adding to the smaller positions until they present a good buy.
    11 Mar 2013, 04:57 PM Reply Like
  • Author’s reply » Excellent point kolpin! I agree with you.


    Project $3 Million considers a full position to be $3K each, give or take a hundred. I have a couple of positions that are over-weighted at $4K. I have 4 positions with a little over $2K each. I consider them to be under-weighted, being only 2/3's of a position.


    Depending on valuations in several weeks, when the next purchase is due to be made, I may just add to a full position, taking it up to $4K and then consider $4K as a full position since all of them are going to get there anyway at some point. Or, I may start a new position with a 1/3 position. I don't know yet.


    I think more speculative positions should be under-weighted.
    11 Mar 2013, 05:09 PM Reply Like
  • Just curious, chowder, about how you determine what's a full position for you. Is it the value of the portfolio divided by the number of positions, so that if you had a $150K portfolio and, say, you wanted 50 positions you'd say that a full position was $3K?


    12 Mar 2013, 06:24 AM Reply Like
  • Author’s reply » That's it Martin. That's exactly how I determine it. Then, if I don't wish to own any more positions, and each is already a full position, I will slowly start raising the weighting for each position, based on best value available. I might raise a full position to $5K each, and once that is achieved, raise it again.
    12 Mar 2013, 08:11 AM Reply Like
  • Thanks, chowder. I've been wondering about this because of all the restructuring and reallocation I've been doing.
    12 Mar 2013, 08:21 AM Reply Like
  • Author’s reply » Keep in mind Martin, they don't need to match to the dollar, just keep them within range of each other. The key here is to minimize losses and not have to fight for the same ground twice, especially if that ground ends up being a football field long. By playing a good defense, the offense will take care of itself since the market has an upward bias over time. It's up to us not to let one mistake wipe out years of profit. And, we will make more mistakes. You can take that to the bank. ... Ha!
    12 Mar 2013, 08:29 AM Reply Like
  • Thanks again, chowder. I always appreciate your considered comments.
    13 Mar 2013, 10:38 AM Reply Like
  • My weightings have gone to heck in a handbasket due to share price appreciation over the past 12 months. I don't much care :)


    SEP is up 35%, PG up close to 27%, OHI up 26%, several up around 15%. Seems like most of the laggards are up single digits.


    My newest positions are about 1/2 weight. Why? Because I wanted to add more positions as I sold some. Those include ARCP, LNT, D, DRI and POT.


    There will be a new influx of money into my wife's account in the next 6 months. Some of that may go to bring those positions closer to full weight. In the meantime, my foot is in the door on those.


    I am not changing a thing right now
    12 Mar 2013, 08:45 AM Reply Like
  • Great article. But I do have some questions about keeping ones portfolio properly weighted. Here is a hypothetical, lets say that you have a portfolio with 10 positions. Each position to start is worth $1k with a total investment of $10k.


    First, Invariably stocks go up and down. So lets say that from your original investment of $10k, after 1 full year, you have 11500$ sitting in the portfolio. $1250 from the appreciation of your stocks and the balance from dividends. (Not a bad year btw). But lets say that the gains were split among only five stocks and the other five dropped. (Say the five that lost, lost $50 each. And the five that gained each appreciated $200 each in value) then at the end if the year how do you determine how to adjust for proper position weighing for the portfolio? Clearly if a stock still works with sound fundamentals etc., you wouldn't want to trade it out.


    Second, how often do you look to the portfolio to perform an analysis on the portfolio weights? Monthly, quarterly, yearly??


    Thank you in advance for your willingness to share in how one properly manages their own drip program.
    21 Aug 2013, 10:08 PM Reply Like
  • '''after 1 full year, you have 11500$ sitting in the portfolio. $1250 from the appreciation of your stocks and the balance from dividends. (Not a bad year btw). But lets say that the gains were split among only five stocks and the other five dropped. (Say the five that lost, lost $50 each. And the five that gained each appreciated $200 each in value) then at the end if the year how do you determine how to adjust for proper position weighing for the portfolio?'''


    Not enough difference to matter.


    Put the dividends into the best value(s) or use them to start another position and get on with earning more money to add to the portfolio!


    If you have 20% difference between high and low instead of about 2% then I'd want to do something about it.
    21 Aug 2013, 11:11 PM Reply Like
  • Author’s reply » It depends on whether cash is going into the account or not. If one is still contributing cash, or collecting the dividends in cash, then I allow my winners to run and build up the laggards with the extra cash and/or dividends.


    If you look at the Project $3 Million Portfolio, you will see where some positions are much more weighted than others. I have been adding to those positions, one at a time, based on valuations. KMB, ADP and CL have continued to be overvalued, thus no additional funds went their way, and they are now under-weighted. I will remedy that situation starting next month. I will add to KMB regardless of price and regardless of market conditions.


    The person owning that account has more than 30 years before reaching age 65, so I don't think adding another $1,000 to each of those positions will make that much difference over that time frame, even though all three are currently overvalued.


    I actually look at positions bi-annually with regard to weightings, performance and dividend growth. I allow them some time to show me what they got.


    If someone isn't adding cash to their portfolio, then they may need to re-balance their positions. I would think annually would probably be the best way to look at it in order to minimize turnover and trading fees.
    21 Aug 2013, 10:23 PM Reply Like
  • As always, thank you to everyone for their respective insight. Very informative and insightful.
    22 Aug 2013, 05:38 PM Reply Like
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