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Author: abFatPitch Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 766  
Subject: Are 20 Stocks Too Many Date: 12/8/2005 11:52 AM
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http://www.fool.com/News/mft/2005/mft05120805.htm?ref=foolwatch

In the above article, TMF staff extoll the possible virtues of a concentrated vs a diversified portfolio, which I don't necessarily disagree with. But, how does this jive with the newsletters' advice to buy 1 or 2 rec's each month and build out a portfolio of dozens of companies?

ab - trying to reconcile it all
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Author: TMFSelena Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 741 of 766
Subject: Re: Are 20 Stocks Too Many Date: 12/8/2005 9:37 PM
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<<In the above article, TMF staff extoll the possible virtues of a concentrated vs a diversified portfolio, which I don't necessarily disagree with. But, how does this jive with the newsletters' advice to buy 1 or 2 rec's each month and build out a portfolio of dozens of companies? >>

Are our newsletters really advocating that readers buy all of the recommendations? I'm under the impression that instead, they offer monthly recommendations that readers can research further, and from which they can choose which ones to invest in, according to their own assessment and their interest/needs/etc.

Selena

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Author: abFatPitch Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 743 of 766
Subject: Re: Are 20 Stocks Too Many Date: 12/9/2005 6:39 AM
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Are our newsletters really advocating that readers buy all of the recommendations? I'm under the impression that instead, they offer monthly recommendations that readers can research further, and from which they can choose which ones to invest in, according to their own assessment and their interest/needs/etc

Hello Selena.

TomG, even from the early days of Hidden Gems, had suggested buying small amounts of each recommendation and building a diversified portfolio of dozens of stocks, a la Shelby Davis. I think this is fine yet I also think TMF should nave an internal consistency particularly for the benefit of new investors of which there are many here.

Currently The Fool seems to be adopting the theme of portfolio concentration across many of the discussions around the site. This is fine also, but I think it important to realize what I would consider to be a bit of conundrum here. The newsletters are very often advertised with headlines promoting theur respective cumulative returns, as they should be as they are in most cases truly outstanding. Yet the only way one could hope to duplicate the advertised returns is to buy each recommendation from that newsletter or else it becomes a matter of luck. Now, this may not be the case for the experienced investor, although this is arguable as well, but it is definitely the case for new investors.

So, can a new investor concentrate a portfolio and still match Stock Advisor's 50% returns without being lucky?

ab

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Author: TMFSelena Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 744 of 766
Subject: Re: Are 20 Stocks Too Many Date: 12/9/2005 7:41 AM
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ab --

<<I think this is fine yet I also think TMF should nave an internal consistency particularly for the benefit of new investors of which there are many here. >>

Gotcha. I'm with you on that -- though it's not as easy as it seems. The truth is that (a) various Fool writers and thinkers, while generally holding similar views on investing, do have differences. We don't always agree on the merits of various specific stocks, and we don't always agree on investing in general, too. (One might like options and shorting, another might avoid those, for example.)

I think that if you're going to be an active, involved investor, it can be hard to keep up with many stocks if your portfolio is loaded with many. But on the other hand, if you hold, say, 50, you may not be studying each one closely, but your risk in each one is a lot smaller than it would be if each holding constituted 10% of your nest egg. So I can see it going either way, I guess.

See -- I've been noticing apparent contradictions since at least 1999: http://www.fool.com/portfolios/rulebreaker/1999/rulebreaker990920.htm

<< The newsletters are very often advertised with headlines promoting theur respective cumulative returns, as they should be as they are in most cases truly outstanding. Yet the only way one could hope to duplicate the advertised returns is to buy each recommendation from that newsletter or else it becomes a matter of luck. >>

Again, I see your point. But I also (and perhaps this is simply due to a lack of imagination on my part) can't really imagine many better ways for us to promote our newsletters' performance. It would, to me, be *more* problematic to, say, just highlight the performance of a few sample stocks that we've recommended: "XXX is up 300% since being recommended! YYY is up 88% in five months."

The average doesn't promise you anything, but it does convey a sense of how well the group of recommendations has done, and helps you decide whether or not you want to pay attention to the newsletter and its recommendations.

<< So, can a new investor concentrate a portfolio and still match Stock Advisor's 50% returns without being lucky?>>

You mean can someone cherry-pick from its recommendations and match its overall average? I'd think not. You'd probably do better or worse than the average.

Selena

P.S. These are all just my personal opinions and perspective, as a long-time Fool. I'm not responding as any official newsletter representative. Just a nosy nellie.

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Author: abFatPitch Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 745 of 766
Subject: Re: Are 20 Stocks Too Many Date: 12/9/2005 9:22 AM
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Again, I see your point. But I also (and perhaps this is simply due to a lack of imagination on my part) can't really imagine many better ways for us to promote our newsletters' performance. It would, to me, be *more* problematic to, say, just highlight the performance of a few sample stocks that we've recommended: "XXX is up 300% since being recommended! YYY is up 88% in five months."

I think the newsletters should promote their average returns. Touting individual stock picks that did exceptionally well is a cheap trick and should be avoided, agreed.

The average doesn't promise you anything, but it does convey a sense of how well the group of recommendations has done, and helps you decide whether or not you want to pay attention to the newsletter and its recommendations.

Here I don't quite agree. I think the average does indeed promise you something, the expectation of similar returns, why make such a big deal over it in the ad otherwise?

You mean can someone cherry-pick from its recommendations and match its overall average? I'd think not. You'd probably do better or worse than the average.

Exactly, and you couldn't predict better or worse. But, I want to average 50%/year so I therefore should buy each recommendation to match the newsletter return. Then I end up owning dozens and eventually hundreds of stocks, which again, may be fine, but it isn't portfolio concentration. I have no problem with The Fool being "investors writing for investors," in fact I like it, but nevertheless I see this big inconsistency. For example, look at this quote from the Stock Advisor (http://www.fool.com/Newsletters/18/Help/Welcome/GettingSpecific.htm)

"How many stocks should I own?
We want you to build a diversified portfolio that helps you maximize profits and minimize risks. You want to own enough stocks so that a few bad surprises won't ruin your returns, but not so many that your great selections are cast adrift in a sea of also-rans. As a rule, we recommend holding anywhere from eight to 15 stocks..."

If I take the above recommendation, I can't expect to match the advertised return of the newsletter unless I'm lucky. So do I concentrate or buy 'em all? That's just my observation.

ab






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Author: TMFSelena Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 746 of 766
Subject: Re: Are 20 Stocks Too Many Date: 12/9/2005 10:07 AM
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ab --

<<Exactly, and you couldn't predict better or worse. But, I want to average 50%/year so I therefore should buy each recommendation to match the newsletter return. >>

I'd disagree here. Because even if the newsletter has achieved a 50% average annual return, there's no guarantee of that in the future. The future may bring better or worse returns. What the 50% tells me is that the picks have been far from dismal, overall, and are likely to continue being that way.

If you choose to buy a little of each of the recommendations, you probably won't earn 50%/year (instead, it'll likely be more or less), but you *will* set yourself up to mimic/track the newsletter's performance, whatever that turns out to be.

<< For example, look at this quote from the Stock Advisor (http://www.fool.com/Newsletters/18/Help/Welcome/GettingSpecific.htm)

"How many stocks should I own?
We want you to build a diversified portfolio that helps you maximize profits and minimize risks. You want to own enough stocks so that a few bad surprises won't ruin your returns, but not so many that your great selections are cast adrift in a sea of also-rans. As a rule, we recommend holding anywhere from eight to 15 stocks..."

If I take the above recommendation, I can't expect to match the advertised return of the newsletter unless I'm lucky. So do I concentrate or buy 'em all? That's just my observation.
>>

Well, again, I concede that there's a contradiction here. But life is full of contradictions. I think an investor can do well concentrating a portfolio to 8-15 stocks (and for many people, this may be the best route). But I'll also agree that one can do quite well owning more. These are just different approaches, and sometimes more than one road will lead to Rome. :)

I wish that there was just one, clear way to invest most effectively, but I don't see that. Sometimes it's better to buy more of a falling stock, and sometimes it's better to sell. Some investors would do best with just an index fund, and others would do better with other funds or individual stocks, if they have the time and interest to devote to selection and monitoring.

Selena

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Author: abFatPitch Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 748 of 766
Subject: Re: Are 20 Stocks Too Many Date: 12/9/2005 11:31 AM
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Okay.

Thanks Selena.

Best,

ab

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