No. of Recommendations: 0

How do each of you measure a companies risk ?

Good question. I would have to say subjectively not quantitatively.

I do favor solid dividend payers for the bulk of my portfolio, and within different allocations. Does this make me low risk? I don't think so as I hold no fixed income portion at all with no plans of doing so for a while (I'm 43).

Subjectively, I would measure risk by a few criteria.
- Competitive advantage / moat to competition
- Company history / reputation / years in the industry
- Nature of the business
- by volatility

I allocate with traditional labels. In my IRA (my largest account) this is roughly

30% US Income securities (~10 holdings and DVY)
15% Value (2 funds)
25% Foreign - mixed bag here.
10% REIT and REIT like - 4 holdings (I do include ETV in this allocation - whatever?)
20% Speculative, mostly HG types and small cap value ~ 10 holdings.

Now about 2 years ago I did try to break this into Risk levels - just speculative high, low, and medium based solely on my own impressions. The results surprised me, I was taking a bit more risk than I originally thought (don't still have the numbers). I recall that I did jigger down the speculative portion from 25% to 20 and added to the foreign holdings (mostly dividend payers - but also MINDX - which I would classify as high risk). Interestingly two of my REIT holdings NLY and AFR I would also currently classify as high risk - this from within a traditionally low risk allocation.

It's a worthwhile exercise that I would recommend to anyone.

The other way I look at my port is to look at my worst performers. Do I want to add to them. In my IRA, I have added to seven of the 10 worst performers (1 is a relatively new position and I am considering adding to one of the two remaining). Six of the seven secondary positions are showing gains - I feel pretty good about that.

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.