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Allocation Or Stock Selection - An Example

Although there is nothing like good stock picking skills to get returns like Warren Buffett, for an investor who, for whatever reasons, is unable to acquire such abilities, it may be possible to construct portfolios based on simple allocation strategies whose returns are almost as good as those of some portfolios based on stock selection, with somewhat less efforts.

A recent article on SA by a fundamental analyst par excellence provides a good example ( ). The case study described in this article considers a portfolio that was initiated with $3M at the beginning of 2006. Even after annual withdrawals that increased every year as the dividends accrued from the twenty stocks of the portfolio, it ends up with $5.6M at the end of 2013, thus weathering the intervening shocks in the market with admirable and rarely matched success.

I have compared the the performance of this all stock portfolio with that of various portfolios based the Naïve Graham allocation strategy ( ) . The following are the relevant details for each portfolio:

  1. The starting capital was $3M.
  2. The portfolio was rebalanced at the beginning of every quarter according to the Naïve Graham method.
  3. At the beginning of every year, an amount equal to the annual accrued dividends as specified the article referenced above was withdrawn from portfolio. The specific withdrawal amounts are given below:


Amount withdrawn

















It might be noted that the timing of the withdrawals may affect the results, but the withdrawal at the beginning of the year probably biases the results against the allocation portfolios.

The amount left in the portfolios at the end of 2013 is given in the following table:


Value at EOY 2013







iShares Value


iShares Gowth


Fidelity Value


Fidelity Growth


All Stock


For the iShares Growth portfolio, the following ETFs were used in addition to TLT: IVW, IJK and IJT. For the Fidelity Growth portfolio, I used the following funds: FBGRX, FMCSX and FCPGX. For the other portfolios the same funds were used as in the original post on Naïve Graham referenced above.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: This post is not intended to be investment advice.