i am "too-heavily weighted" in xom, so they say. this is a calculated risk on my part, as the dividends roll in. as it is surely one of the most stable companies around, doesn't it make sense to hold on no matter what the stock price does...for the dividends, which have only increased historically? i can see if the stock sky-rockets to astronomical levels. then it might make sense to sell.advice please?
i am "too-heavily weighted" in xom, so they say. this is a calculated risk on my part, as the dividends roll in. as it is surely one of the most stable companies around, doesn't it make sense to hold on no matter what the stock price does...for the dividends, which have only increased historically?Who is this "they"? A stock broker who has a vested interest in 'churning' your account?You are correct XOM is one of the most stable companies around. I'd hold onto the stock with both hands.If you want to diversify invest new money in other stocks so as to bring your percentage of XOM down without letting go of those dividends.Here's a list of some stocks you may wish to invest new money in:http://boards.fool.com/i-recently-started-one-with-pep-and-a...IIRC you can start DRIPs in a couple of them with just a promise to invest $25 a month in them.
i am "too-heavily weighted" in xom, so they say. this is a calculated risk on my part, as the dividends roll in. as it is surely one of the most stable companies around, doesn't it make sense to hold on no matter what the stock price does...for the dividends, which have only increased historically? i can see if the stock sky-rockets to astronomical levels. then it might make sense to sell.advice please?It is pretty difficult for us to judge.How concentrated is your portfolio? 3 stocks? 10 stocks? 100 stocks? How much does XOM make up?What would happen if the unthinkable happens and XOM goes belly up? Would the impact be catastrophic to your financial future? Would it be a slight inconvenience? Somewhere in between?If you are still in the accumulation phase of your investing lifecycle, as opposed to the draw down or maintenance phase, then it is probably less of an issue. You could simply reduce XOM's relative allocation by continuing to add to your other holdings.
yes, 'they' (counseling me to sell!) are stock brokers working on commission! i only had one in 12 years tell me that if he were too weighted in one stock, xom would be the one....and yes, it is a large portion of my overall portfolio...if xom went the way of Enron, it would indeed be catastrophe for me. not total, but not a fun day :) this is why i said it is a calculated risk, a risk i understand.my ex husband and his dad worked for mobil then exxon for all their careers, i feel i know the company somewhat and watch it very closely (and admit some emotional tie to stock)..but am prepared to sell at a certain number. however, i always come back to the dividends... if the stock goes to $1, as long as they don't cut dividends, i still have that income..... so yes, i think it makes sense to relax and hang on as well, thanks for the input!!
... if the stock goes to $1, as long as they don't cut dividends, i still have that income..... so yes, i think it makes sense to relax and hang on as well...If you're holding the stock for the dividend income instead of capital appreciation, that makes for a different story. I'm like you on some of my stocks, I have them for the dividends. Don't care what the stock price did as long as the dividends kept coming.It still would make sense to balance out your portfolio a little. What if XOM did like BP and had to cut their dividend for awhile. If that was the majority of your money in retirement, you'd be hurting.You might not want to sell any XOM, just buy more of others to make XOM a smaller percentage of your portfolio.JLC
yes, 'they' (counseling me to sell!) are stock brokers working on commission! i only had one in 12 years tell me that if he were too weighted in one stock, xom would be the one....and yes, it is a large portion of my overall portfolio...if xom went the way of Enron, it would indeed be catastrophe for me. not total, but not a fun day :) this is why i said it is a calculated risk, a risk i understand.my ex husband and his dad worked for mobil then exxon for all their careers, i feel i know the company somewhat and watch it very closely (and admit some emotional tie to stock)..but am prepared to sell at a certain number. however, i always come back to the dividends... if the stock goes to $1, as long as they don't cut dividends, i still have that income..... so yes, i think it makes sense to relax and hang on as well, thanks for the input!!If the stock goes to $1, they will *definitely* cut dividends, because the only way it would go down to $1 is if they encounter some incredible catastrophe that devastated their future earning potential. Companies set their dividends based on their expectations of future earnings and cash flow. If those expectations decrease significantly, they will cut the dividend. For example, BP is in the same industry, and after the Deepwater Horizon well explosion, they stopped their dividend for 3 quarters before restarting the dividend at half of the level before the disaster.http://www.bp.com/extendedgenericarticle.do?categoryId=90330...You will *probably* be okay holding on to all of your XOM, but do you really want to take the chance of being one of the horror stories that financial advisors use to warn clients to diversify? I recommend selling some of your XOM (to a point that would not be devastating if the unthinkable happens) and buying a more diversified selection of dividend stocks from the U.S. Dividend Champions list:http://dripinvesting.org/tools/tools.asp
geezee,this is why i said it is a calculated risk, a risk i understand.There is your answer because this is the heart of all investing. The brokers are not you and none of us that follow this board are you. What we understand about the company or your portfolio make up matters far less than how you use your portfolio to work the markets. If it aint broke, don't fix it.jack
my ex husband and his dad worked for mobil then exxon for all their careers, i feel i know the company somewhat and watch it very closely (and admit some emotional tie to stock).These are all warning signs that you've fallen in love with the stock and therefore can't think dispassinately about it. You may love a stock, but the stock does NOT love you back.I'm trying to understand why anyone would call XOM a "most stable company". First off, you don't own the company, you own the stock. Second off, in the last 5 years XOM has gone from 60 to 95 to 78 to 82 to 55 to 83 and to 70.How anyone could call this "steady" ot "stable" is beyond me.What do you mean by "watch it very closely"? Pull up the quote on Yahoo once a day? Spend hours going over the annual report every time it comes out? Visit the CEO & CFO? Read all the engineering reports on the wellhead equipment and blowout preventers?The risk is not that XOM will be like Enron. The risk is that XOM will be like BP -- things will be going great and then the evening news has photos of millions of barrels of oil spewing out of an accident."Everyone has a plan 'till they get punched in the mouth." -- Mike Tysonbut am prepared to sell at a certain number.So is everybody. Heck, I'm prepared to sell DELL when it hits 400. Two questions to ask yourself:1) Is yout target price realistic and fixed in stone?2) Did you sell when XOM was on that slide from 94 down to 60? If you didn't sell then, then I'd say that you won't sell ever.I note that XOM has a dividend yield of 2.60%. What the heck? That's a nice dividend, but certainly not worth taking a huge risk on.Is there something special about that XOM dividend check? When you take it to your bank to cash it, do the tellers form a line and shout cheers? Would you feel degraded if instead of getting $1000 from XOM you received $500 from XOM and $500 from MCD? (MCD is 2.70% yield, XOM is 2.60%)In fact, run a chart of XOM & MCD, like this one: http://finance.yahoo.com/echarts?s=XOM+Interactive#chart2:sy...To me, it looks like MCD is more stable than XOM.Risk management. If you own primarily one stock, then you don't have any. Standard recommendation is to have no more than 4%-5% of your portfolio in any single company. That means 20-25 stocks.--------------------My suggestion would be to look at "DividendChampions" http://dripinvesting.org/Tools/U.S.DividendChampions.xls and related web sites, and spread out into 10-25 companies.There are 101 in that list. You can easily pick 25 of them. (Yes, XOM is one of them.) You can spread your risk and actually increase your yield.
We are way overweight in GPC and every planner says we should sell a lot of it, but it has raised its dividend for more than 50 consecutive years so we keep it through ups and downs.We do have some XOM also and I see no reason to sell at the curent prices. It you sell them, early spring is usually the time they hit a peak.brucedoe
My suggestion would be to look at "DividendChampions" http://dripinvesting.org/Tools/U.S.DividendChampions.xls and related web sites, and spread out into 10-25 companies.There are 101 in that list. You can easily pick 25 of them. (Yes, XOM is one of them.) You can spread your risk and actually increase your yield.Actually, there are 101 Champions with streaks of 25 or more years of higher dividends, but there are also Dividend Contenders (10-24 years) and Dividend Challengers (5-9 years)...see the tabs at the bottom of the screen. All in all, there are 452 companies that have paid higher dividends for at least 5 straight years...so there's a lot more diversity to be had than "just" the 101 Champions...;)
My suggestion would be to look at "DividendChampions" http://dripinvesting.org/Tools/U.S.DividendChampions.xls and related web sites, and spread out into 10-25 companies.There are 101 in that list. You can easily pick 25 of them. (Yes, XOM is one of them.) You can spread your risk and actually increase your yield.Actually, there are 101 Champions with streaks of 25 or more years of higher dividends, but there are also Dividend Contenders (10-24 years) and Dividend Challengers (5-9 years)...see the tabs at the bottom of the screen. All in all, there are 452 companies that have paid higher dividends for at least 5 straight years...so there's a lot more diversity to be had than "just" the 101 Champions...;)What? No list of companies that paid dividends at least 1 quarter in a row? :-)
What? No list of companies that paid dividends at least 1 quarter in a row? :-) Actually, a stock I mentioned in another thread. GOL. It was a 2010 pick by a screen under investigation. 11.88% yield based on a $0.398 dividend paid on 3/20/2010.Unfortunately, the previous dividend was 0.108 paid on 5/2/2008 (yes, TWO years earlier). And the next dividend was 0.12 paid on 5/5/2011 -- one year later.Oof!!-----------I didn't mention the Dividend Contenders (10-24 years), because I figured it was overkill. Reading between the lines of the OP, I doubt that she'll consider swapping out of XOM. Giving her a list of 200-300 stocks would most likely cause paralysis.
What? No list of companies that paid dividends at least 1 quarter in a row? :-) Well...there are 32 additional companies listed in the Appendix (on the Notes tab) that have increased the dividend for 4 straight years...;)So that's just 484 companies...that I know of...that have increased for at least 4 straight years.
yes, 'they' (counseling me to sell!) are stock brokers working on commission!I thought as much. When their boat payment is coming due suddenly your portfolio needs re-balancing.There are several people here who can point out dividend paying stocks you can buy without a broker if you're interested. Dfish's list is one of the best.
If it aint broke, don't fix it.I couldn't disagree with this sentiment more. The logical conclusion is to wait until it's broke(n), then fix it. Except in this case, if it's broke, so are you, and there's no fixing it.As others have pointed out, XOM is a great and powerful company. So was BP, which suffered a catastrophic blow-out on just one well out of the 760 that BP has leases for in the Gulf. (37 are deep water.) If you were depending on the income stream from BP, you'd be in trouble - at least for a while and perhaps permanently.My father has a portfolio worth about $1 million. 60% of it is in just two stocks: Aflac and Verizon. He worked for a private company which was bought by Amax metals, which was bought by General Telephone, which was bought by Bell Atlantic, which became Verizon (I may be off on the sequence somewhat), and he ended up with a boatload of shares which he has never sold. With Aflac it was the other story: he bought some and it did well, so he bought some more, and ... repeat about 10 times, and he has two very large holdings and a smattering of small fry.Now he's been lucky and neither one has tanked. Both offer a handsome dividend stream. If one of them does go upside down, even temporarily he would be hurting, and we've talked about this (in some detail) but he's happy and I'm certainly not going to push him to do something he doesn't want to do.Big, stable, trusted companies go in the crapper all the time. I have my portfolio arranged with about 20 stocks, mostly all dividend payers, one of which was General Electric. A fine, historied, respected company with a long track record of increasing earnings and dividends until, one day in 2008, it went off the rails. The stock cratered, but worse, the dividend was slashed. Lucky for me it was only about 3% of our holdings, and it didn't really hurt (except psychologically, since I thought I "knew" about the company, having worked for arch-competitor Westinghouse for 17 years.)It's easy to ride a winner; I did it with AOL and Cisco in the 90's and made a bundle. I also got lucky and sold a bit before the tech crash. I paid taxes in six figures a couple of times, and it was the best money I spent, given that the alternative was to ride both of those down into the mud. I have a friend who also had handsome gains, and rode them right down into the ditch because he couldn't conceive that they wouldn't "bounce back". Meanwhile his bank account doesn't look so hot anymore, because he never put his winnings in, all his profits were on paper.If you are going through a high commission broker, why? I was, and the guy at Dean Witter took two-grand off the top for the privilege of selling my Cisco shares. I had a larger profit on AOL, which I routed through Schwab, and paid a tiny fraction. If you need the broker's advice, well fine, (although I'd argue that he's profiting off your naivete and capital) then stick with it.Otherwise, I'd do some serious soul searching about what would happen if Exxon crashed another tanker, or had a blowout somewhere, or if some of their foreign holdings were suddenly nationalized by some government without recourse - all of which are realistic, if less than likely scenarios.Don't wait til it's broke. Fix it while you can fix it.
What is your investment objective?1. Is XOM part of a broad overall portfolio for which you wish to occasionally sell some shares of highly appreciated or overbought securities to provide you with capital gain income for income support...or to reinvest these gains in other stocks to grow the portfolio for some future date to begin withdrawals?2. Or is this an income portfolio from which you require the dividends from the companies you hold to supplement other retirement income, and XOM is one of these companies?The risk in #1 is that some bad market condition or some bad internal issue will hit XOM and its price will decline sharply. Examples over the past few years of this happening to 'Blue Chip' companies, include GM, C and PFE. Your hedge on this risk is diversification amongst poorly correlating asset classes with periodic rebalancing. Thus I'd agree with the broker who advised you.The risk in #2 is that you are expecting too much of your income to come from a single company, and the dividend could be reduced or even eliminated. The challange here is that you can't rely on the stock's price to tell you a dividend reduction/cut is imminenet...you must look at the company's ability to pay their dividend, by looking at their operational cash flow trends, their dividend history and any news suggesting the company will not be able to sustain its dividend due to very high upcoming expenses (e.g. COP) or rapidly decling revenue (e.g. KIM). If you wait for a falling stock price to tell you, you've waited too long. The hedge on this risk is income (not price) risk diversification, which for me means that no more than 3% of my income comes from any one security. So if your income portfolio is providing you with, say, $20,000/yr in income, my rule says that no more than $600 of this will come from XOM (or any other single stock)BruceM
Look XOM and BP are totally different companies. BP is a rogue and immoral company that ought to be broken up. Their predecessor company is responsible for the problems we have with Iran today. They convinced the British government to request that our government have the CIA dispose of Mossedegh, then the legally elected prime minister of Iran. What did Mossedegh do? He wanted the same deal that Egypt had on oil, i.e. 50% of the profits. Well we disposed of him and Iran has been down hill ever since.And BP is ALWAYS having "accidents." Even during the Deepwater Horizon incident whee 11 were killed and the U.S. paid billions in the remdiation of the "accident," BP had another accident with the Alaskan pipeline. Earlier the same decade, BP had a big explosion at a refinery in their Texas City refinery that killed 15 people in 2005 and injured more than 100 others. See http://www.google.com/search?q=BP+wprler+killed+in+refinery+...Now look at XOM. They paid the full bill for the Exxon Valdez accident. The Federal government paid nothing. Now Google the same question about XOM deaths: http://www.google.com/search?q=XOM+worker+killed+in+refinery.... I see two death world wide.You can't compare BP to XOM. BP is just crooked and would rather pay the legal costs of accidents that have worker safety. I would NEVER recommend BP as a core investment. XOM is something else. As companies go, XOM is reletively responsible.I would NEVER buy gas from a BP station unless I was about ready to run out of gas.brucedoe
Texas City, Prudhoe Bay, Sea Gem, Deepwater Horizon This is just off the top of my head.You can't find a worse run oil company than BPJust saying...Pete
Now look at XOM. They paid the full bill for the Exxon Valdez accident.Actually not. They had to be sued into doing so, and then appealed, appealed, and appealed the verdict all the way to the Supreme Court, winning a lessening of damages three separate times.Look, I'm not saying that they're equal. I'm saying that both are in a dirty business with potentially catastrophic outcomes, even if well run. Ask the folks at General Public Utilities and Babcock and Wilcox - or Toyko Electric how great it is to have a safety record that gets shredded within 24 hours.And say, don't I recall something about Exxon spilling a major amount of oil into Yellowstone just a month or two back? My point is not to bash Exxon; I used their products, I drive a car, I heat my house. I'm saying that thinking that they - or anyone is immune to disaster simply because they're big, "well respected" (if true), and so on is folly.General Electric. Bear Stearns. Washington Mutual. Westinghouse. WorldCom. Lehman Brothers. General Motors. CIT. Conseco. Chrysler. Pacific Gas. Texaco. United Airlines. Blockbuster. Montgomery Ward. K-Mart.It can happen to anyone, and no matter what you think, or how closely you "watch that basket", it's going to happen to others, maybe including you. Spread the risk, and don't think that because BP is awful, that nothing can happen to Exxon. It doesn't work that way. As I noted in another thread, the Chinese government just shut down over 250 Conseco wells in the Bay of China because one of them has a problem. http://boards.fool.com/those-dang-government-regulators-2952... Is Conseco terrible too? Don't they all have these risks?
Look XOM and BP are totally different companies. BP is a rogue and immoral company ...You can't compare BP to XOM.... XOM is something else. As companies go, XOM is reletively responsible.Were you undre the impression that posters have been telling the OP to sell XOM and buy BP?The point is not that BP is evil and XOM cavorts with the angels. The point is that bad things can happen even to good companies. Things which can be totally out of their control.All it would take is for one XOM supertanker to have an engine fire and loss of power and to run aground into the Statue of Liberty.The point also is that the OP can get the SAME DIVIDENDS with lower risk by diversifying and replacing a huge holding in one stock with smaller holdings of 10 or 20 or 30 stocks.
If it aint broke, don't fix it. A bald tire isn't broke but can lose all its air in a blow outwhen you don't want it to. Like driving on vacation with a trunkand roof rack full of stuff.Sometimes sitting smug with one's holdings can cause a hugh loss.~~ MrMax ~~
OK, we've established that it was a stock broker who 'suggested' selling XOM and diversifying into other stocks.I'll take another wild guess and say s/he had a list of stocks for you to invest into with the money left over after paying the commission.Brokers have been know to recommend stocks that pay them a larger commission and I'm guessing you'd find one or two of them on his diworseification list.dfish has a list of U.S. Dividend Champions that have been paying dividends for many years:http://www.dripinvesting.org/Tools/Tools.aspIf at all possible I'd be investing new money into some of them.
If it aint broke, don't fix it.When I made that statement I was talking about how the O.P. runs their entire portfolio not about one specific stock. If they are comfortable with managing the risks of a portfolio with one or more stocks that are "over-weighted" by someone else' definition then they should stick to their guns. Many people run focused portfolios with a great deal of success. Many people LTBH to great success. Many people trade charts with great success. Many people run a portfolio of 100 stocks with great success. Many people run a portfolio with between 20 - 30 stocks with great success. Just because you cannot run a portfolio a certain way or certain approaches make you uncomfortable does not mean what another person does is unworkable. If the O.P. is comfortable with all the risks that have been posted and believes they can manage their portfolio in a way that mitigates those risks then I say again "If it aint broke, don't fix it".jack
Many people run focused portfolios with a great deal of success.Many also run a focused portfolio and go bankrupt. Many buy a lottery ticket and win a million dollars. "Many" is a pretty uncompelling argument in the absence of other data.Just because you cannot run a portfolio a certain way or certain approaches make you uncomfortable does not mean what another person does is unworkable. OK. Putting all your eggs in one basket is idiotic, since you have no control over the basket, but have it your way. You may be rich, or you may be poor, or you may come out OK - but your "investing style" has nothing to do with it.then I say again "If it aint broke, don't fix it".Do you understand that the logical result of this philosophy is that you will do nothing until something is broken, and then attempt to fix it? When is that ever a good idea? Do you change the oil in your car, or "fix it" before your engine seizes? Do you repair your roof, or wait until it's raining in your living room? Do you wait for the bank to call and tell you you're overdrawn, or do you check the balance once in a while and "fix it" if it gets too low?The phrase is a snappy turn of words; unfortunately it's also the dumbest philosophy around.
Many people run focused portfolios with a great deal of success.Many also run a focused portfolio and go bankrupt. Many buy a lottery ticket and win a million dollars. "Many" is a pretty uncompelling argument in the absence of other data.Let's see what the world's greatest investor had to say on the topic:“We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it. In stating this opinion, we define risk, using dictionary terms, as ‘the possibility of loss or injury.’”1993 Letter to Berkshire Hathaway shareholdershttp://www.berkshirehathaway.com/letters/1993.html“Of course, some investment strategies - for instance, our efforts in arbitrage over the years - require wide diversification. If significant risk exists in a single transaction, overall risk should be reduced by making that purchase one of many mutually-independent commitments…Another situation requiring wide diversification occurs when an investor who does not understand the economics of specific businesses nevertheless believes it in his interest to be a long-term owner of American industry. That investor should both own a large number of equities and space out his purchases…On the other hand, if you are a know-something investor, able to understand business economics and to find five to ten sensibly-priced companies that possess important long-term competitive advantages, conventional diversification makes no sense for you. It is apt simply to hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite rather than simply adding that money to his top choices - the businesses he understands best and that present the least risk, along with the greatest profit potential. In the words of the prophet Mae West: ‘Too much of a good thing can be wonderful.’”1993 Letter to Berkshire Hathaway shareholdershttp://www.berkshirehathaway.com/letters/1993.html“We think diversification, as practiced generally, makes very little sense for anyone who knows what they're doing. Diversification serves as protection against ignorance. If you want to make sure that nothing bad happens to you relative to the market, you should own everything. There's nothing wrong with that. It's a perfectly sound approach for somebody who doesn't know how to analyze businesses.But if you know how to value businesses, it's crazy to own 50 stocks or 40 stocks or 30 stocks, probably because there aren't that many wonderful businesses understandable to a single human being in all likelihood. To forego buying more of some super-wonderful business and instead put your money into #30 or #35 on your list of attractiveness just strikes Charlie and me as madness.”1996 Berkshire Hathaway Annual Meeting“I made a study back when I ran an investment partnership of all our larger investments versus the smaller investments. The larger investments always did better than the smaller investments. There is a threshold of examination and criticism and knowledge that has to be overcome or reached in making a big decision that you can get sloppy about on small decisions. Somebody says ‘I bought a hundred shares of this or that because I heard about it at a party the other night.’ Well there is that tendency with small decisions to think you can do it for not very good reasons.”“Warren Buffett Talks Business,” The University of North Carolina, Center for Public Television, Chapel Hill, 1995“Our policy is to concentrate holdings. We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts.” 1978 Letter to Berkshire Hathaway shareholders http://www.berkshirehathaway.com/letters/1978.html“I put a heavy weight on certainty. If you do that, the whole idea of a risk factor doesn't make sense to me. Risk comes from not knowing what you're doing.”“Buffett Talks Strategy with Students”, Jim Rasmussen, Omaha World-Herald, January 2, 1994, p. 17S“John Maynard Keynes, whose brilliance as a practicing investor matched his brilliance in thought, wrote a letter to a business associate, F. C. Scott, on August 15, 1934 that says it all: ‘As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence… One's knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.’”1991 Letter to Berkshire Hathaway shareholdershttp://www.berkshirehathaway.com/letters/1991.html“Though the mathematical calculations required to evaluate equities are not difficult, an analyst - even one who is experienced and intelligent - can easily go wrong in estimating future "coupons." At Berkshire, we attempt to deal with this problem in two ways. First, we try to stick to businesses we believe we understand. That means they must be relatively simple and stable in character. If a business is complex or subject to constant change, we're not smart enough to predict future cash flows. Incidentally, that shortcoming doesn't bother us. What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know. An investor needs to do very few things right as long as he or she avoids big mistakes. Second, and equally important, we insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying. We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success.”1992 Letter to Berkshire Hathaway shareholdershttp://www.berkshirehathaway.com/letters/1992.html“In the final chapter of The Intelligent Investor Ben Graham forcefully rejected the dagger thesis: "Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety." Forty-two years after reading that, I still think those are the right three words. The failure of investors to heed this simple message caused them staggering losses as the 1990s began.”1990 Letter to Berkshire Hathaway shareholdershttp://www.berkshirehathaway.com/letters/1990.htmlI agree with Warren Buffett. If you know what you are doing, you can decrease your risk by concentrating your portfolio with your best ideas and protecting yourself with a margin of safety. Diversification is a protection against ignorance (not to be confused with stupidity). If you don't know what you are doing or simply do not want to put out the effort required to research and analyze investments thoroughly, you are not going to be able to accurately calculate whether or not you have an adequate margin of safety, in which case it makes sense to diversify and space out your purchases (such as through dollar-cost averaging).
Let's see what the world's greatest investor had to say on the topic:Perfect.Pick the outlier of success, the single best on the planet, and use him as "typical" and tell people they too can do just what he did.Astonishingly stupid advice.Let's see what the world's greatest lottery player had to say on the topic:"I just went to the convenience store every week and spent $100 on tickets, and what do you know, I won the Mega-Ball Jackpot and am now worth $200 million. That's the system to use. How could it not work?"www.thisisnotforreal.comI guess that proves it. I know, I know, you think that's fake. Some people win more than once, some many more times.I love hearing about multiple lottery winners. So very few people ever get to hit the jackpot, relative to the amount of people that play lotteries, yet there's a select few people that actually beat the odds more than once. http://lotterywinnerbios.blogspot.com/2009/11/more-multiple-...We should "concentrate" our effort according to their advice? Frankly, you probably have a better chance of duplicating their feat than Warren Buffett's. If you know what you are doing, you can decrease your risk by concentrating your portfolio with your best ideas and protecting yourself with a margin of safety.There are 1,000 would-be Warren Buffetts who tried this, and who are now working as WalMart greeters, car mechanics, insurance salesmen, and ice-cream vendors. Of course you don't hear about them, and they don't have sycophants running around quoting them because their story is dreary. Talk about survivor bias!Let me ask you a question, oh wise one. Are you rich? Have you moved out of the basement yet?
Let's see what the world's greatest investor had to say on the topic:Perfect.Pick the outlier of success, the single best on the planet, and use him as "typical" and tell people they too can do just what he did.Astonishingly stupid advice.That's not what I did. Either the logic of his statements makes sense or it doesn't. He clearly didn't say that everyone should concentrate their portfolios. Why did you insist on refusing to acknowledge what he actually wrote?Astonishingly stupid criticism (not to mention immature).
Well, goofyhoofy went a bit overboard, but the thrust of his comment was right on, IMHO.I don't recall Buffet ever saying that he invested in a company because both his father-in-law and ex-spouse had worked there.Something jumped out at me in one of your quotes: "...find five to ten sensibly-priced companies..." No suggestion to limit yourself to "one" company---suggestion to own 5 to 10.Remind me, how many companies does BRK own? Ah, never mind -- google to the rescue! http://warren-buffett-portfolio.com/#WarrenBuffett_LatestPor...26, not counting fully-owned entities. Twenty-six.What did he say in 1993? Oh yes: "I cannot understand why an investor of that sort ["a know-something investor, able to understand business economics"] elects to put money into a business that is his 20th favorite."
Well, goofyhoofy went a bit overboard, but the thrust of his comment was right on, IMHO.You are entitled to your opinion, but I think Buffett was right on. *If* you know what you are doing, then it makes sense to concentrate. If you *don't* know what you are doing, then it makes sense to diversify.Remind me, how many companies does BRK own? Ah, never mind -- google to the rescue! http://warren-buffett-portfolio.com/#WarrenBuffett_LatestPor......26, not counting fully-owned entities. Twenty-six.That is mainly due to practical reasons of not having nearly the flexibility that an investor with a small portfolio has. When he ran his investment partnership, it was very concentrated:"Warren Buffett’s compounded annual partnership returns from 1957-1969 were 31.6%. Though it is not easy to determine the relative size of the partnership’s positions, it is well known that Buffett put 40% of the partnership’s assets into American Express during the Salad Oil Scandal of 1964. Martin and Puthenpurackal found that “Berkshire Hathaway’s portfolio is concentrated in relatively few stocks with the top five holdings averaging 73% of the portfolio value.” As Buffett himself has said, “if you really know businesses, you probably shouldn’t own more than six of them. If you can identify six wonderful businesses that is all the diversification you need… going into a seventh one, rather than putting money into your first one, has got to be a terrible mistake.” Buffett has even gone so far as to say that he would have been willing to allocate up to 75% of his portfolio in the distressed assets of Long Term Capital Management in 1998."http://widemoatinvesting.wordpress.com/2009/03/19/concentrat...If I remember correctly, his AmEx position subsequently appreciated to about 2/3 of his portfolio.Buffett also wrote:“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.”1996 Letter to Berkshire Hathaway shareholdershttp://www.berkshirehathaway.com/letters/1996.html
Pick the outlier of success, the single best on the planet, and use him as "typical" and tell people they too can do just what he did.Er... Goof that's not what MadCapitalist said or did. And, as usual, you overreact to advice that differs from yours.Also, the OP, geezee3, said the stock broker had told her she was "too-heavily weighted" in XOM. That, to me, does not mean it was the only stock in the portfolio. Somehow "too-heavily weighted" has morphed into the one and only stock during this discussion. If the OP is looking for one or two more solid companies with good long term growth prospects here are some of my favorites. They can all be bought either through a broker or as DRIPs (Note that, as DRIPs they are all Fee Free):PNY (Been paying a dividend for over 25 years.)Gives a 5% discount on reinvested dividends in its DRIP plan.)WTR (A fast growing water utility.)Gives a 5% discount on reinvested dividends in its DRIP plan.)(Note that both of these companies require that you be enrolled directly in their DRIP plans to earn the 5% discounts. Pseudo DRIPs through brokerages do NOT count and do not earn the 5% discount on reinvested dividends. The DRIP plans of ALL of the companies listed here are easy to set up and can be started online IIRC they sent me forms to sign in the mail.) SO (Been paying a dividend for over 60 years.)(Southern Company does not use a transfer agent. You enroll directly with the company.)WRE (Been paying a dividend for 38 years.)A REIT centered in Washington DC, it'll have renters as long as we have a government.If you're not into DRIPs you need to visit this site:http://dripinvesting.org/Tools/Tools.aspDesert (The world's greatest excuse pales in the face of mediocre performance.) Dave -- (Quotation, with attribution, permitted and encouraged.)
Also, the OP, geezee3, said the stock broker had told her she was "too-heavily weighted" in XOM. That, to me, does not mean it was the only stock in the portfolio. Somehow "too-heavily weighted" has morphed into the one and only stock during this discussion. She also said, " it is a large portion of my overall portfolio...if xom went the way of Enron, it would indeed be catastrophe for me." Reading between the lines, I would say that XOM is an extremely large portion of her portfolio, probably the bulkof it. If a 5% or even 10% position crashed, that wouldn't be catastrophic. Her use of that word indicates that her portfolio might as well be considered the one stock.She also said, "my ex husband and his dad worked for mobil then exxon for all their careers, i feel i know the company somewhat"This is not the way that a well-informed, experienced investor describes why he decided to invest in a particular company.
The phrase is a snappy turn of words; unfortunately it's also the dumbest philosophy around. You manage your portfolio successfully yes?Planning on changing your philosophy? I'm not talking about tweaking tactics by selling this or buying that or increasing cash as a percentage, I'm talking about a major shift from what works for you. Are you planning on taking on 100 stocks instead of 20 - 30? If a 5% complete loss is bad then certainly a .5% complete loss would be better. Are you planning dumping stock picking and settling for the average returns of an index? It would give you more time with the family and what is wrong with average. How about how you go about researching your companies? You have been successful in the past are you planning on changing those methods? Planning on going to a mechanized system soon? Not changing is stupid, right? It ain't broke, you better fix it right?What major shifts have you done within your primary philosophy, those primary concepts that drive your investing, in the last year or two? I suspect that you have a system that works for you. It works because you understand it. It works because it does not overly stress you out. It works because GoofyHoofy can make GoofyHoofy's system work. We all work withing frameworks. The other choice is chaos and in a chaotic system returns are random. Do you understand that the logical result of this philosophy is that you will do nothing until something is broken, and then attempt to fix it? We can talk about the philosophy of car or house ownership if you wish. I doubt any sound philosophy of car or house ownership includes ignoring basic care of the vehicle. Just as any sound investment philosophy includes commons sense maintenance. The O.P. stated that they have sell targets; they have scheduled their maintenance. The O.P. stated they perform their methods of routine DD; sounds like further maintenance to me. Do you understand that your logic stream is fatally flawed or intentionally distorted? Do you fix a bike when it is working? No you don't you maintain it, you may even modify it but you do not fix it. Are you in the habit of fixing your car before it is broken? You may replace the brakes, muffler and fluids at regular intervals and you did not FIX anything. It seems silly to me to fix something that is not broken. How about your watch is it broken? no? better fix it then. Cell phone working? better send it to the manufacturer. Did you re-roof last year? yes, well it aint broke you better fix it again. That logic is inane. Then again the argument could be I don't have a smartphone and everyone should have a smartphone therefore I should fix that. In fact not only should everyone have a smartphone they should have the smartphone recommended by <insert expert here>. If they don't have that smart phone they are silly and stupid and are wrong and they should fix that.The idea that there is only one proper way to invest is ignorant. jack
You make a good case for diversification and a reminder that big names don't = safe. That was your major point and you made it well.However I can't help but say that I think BP a pretty good investment right now. The Deepwater Horizon disaster then screwing up the Russian deals have added up to significant declines in value as well as very bad press but the stock is has priced this stuff in.According to Yahoo finance BP is now a 4.6% yield (with only a 16% payout ratio) and a forward P/E of under 6. I think it's pretty realistic to assume that dividend will keep paying and grow at least at the rate of inflation over time.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |