Monday, March 06, 2006

About Me

For those of you who are interested, I work in the legal profession and have been following and investing in the stock market for over 10 years. I invest almost half of my after-tax income in the stock market every month. I do have some money in individual stocks, but am currently concentrating on building up my long-term portfolio. FYI, my long-term portfolio is the same as the hypothetical portfolio I have been tracking this year. However, unlike the hypothetical portfolio, I do not yet currently own shares of each of the 10 holdings of the long-term portfolio. Instead, to keep my trading commissions at a minimum, I have been purchasing shares of one additional holding in my long-term portfolio each month in an effort to match the percentage holdings my model portfolio dictates.

The reason why I invest this way is because I used to invest primarily in the S&P 500 when I had the deluded belief that I was "buying the market" and that this was the safest way to invest. Accordingly, my portfolio is substantially overweighted with shares of the S&P 500 index. (I also started purchasing shares of Vanguard's Midcap fund several years ago and am also overweighted in that fund. However, that's not such a bad thing, as the Midcap index has performed very well since 2003.)

Given the passage of time since the bubble burst in 2000, I have definitely learned some powerful lessons about the markets. I now appreciate how cyclical different styles of stocks can be, regardless of the underlying fundamentals of the representative companies. For example, the S&P 500 index is primarily a large cap index and has been pretty much flat for the past 5 years even though the earnings of the S&P 500 constituent companies have increased by somewhere around 60+%.

It seems to me that any reasonable portfolio should include midcap and small cap (especially small cap value) index funds, as they outperform their larger peers over time. Also, I now realize that given the massive U.S. trade deficit, it is a good idea to own foreign stocks, because they should outperform when the U.S. dollar inevitably weakens against foreign currencies.

I also have some additional money that I occasionally invest in individual stocks. When investing in individual stocks, I am very selective and will invest in only one or two (or maybe three) stocks at a time, but I like to make big bets. I get my ideas from the Value Line, an invaluable resource. I tend to invest in retailers and semiconductors when I do invest in individual stocks. Instead of trying to invest in the next "hot" sector, I tend to follow these same sectors (i.e., retailing and semiconductors) and buy when good stocks in those industries are being dumped. I realize that other people can do very well by investing in hot industries, but I think I personally perform my best by concentrating my bets of just a couple industries while following those industries closely, learning all that I can.

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