I Eat Bear

Good investing

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I don't think I can stress enough, that the strategy lab is both an investment tool, and a game.

Early in my posts, I stated a goal to beat the indexes, and I certainly have soundly trounced them so far this year, with room to spare. Naturally, I wanted to do well in this lab performance also.

I have to say, I have accomplished both of those goals, and to some degree, I have "led the pack", without violating too many investment rules.

The first rule of GOOD investing, is to be diversified. I look at both the open, and other portfolio's in the lab, and too often, I find that rule has been broken. Well, to be fair, the regular lab has less beginning dollars and that will force them into fewer stock selections. It does however show investors that money can be made, and you don't have to have millions to do it.

Then I look at some of the portfolios in the open, and I don't know whether to congratulate them, or to have pity on them. Yes, maybe the way to win the open lab is to have a few stocks that do very well, but I contend it is a poor way to manage a portfolio. But, if you can make the big bucks that way, should I be one to criticize? Well, I am going to anyway!

I see portfolio's with 25% in a single stock. What a HORRIBLE thing to teach other investors to do, and should we not lead by EXAMPLE?

I do not want to give percentages of what portion of an individuals portfolio should not be exceeded because there are so many different investment amounts. If you have few dollars to invest, you may need to invest in only a few winners. But, as your portfolio grows, the best bang for the buck has to be to diversify.

Maybe I ran too big of a portfolio for this game, and I certainly have a portfolio with more stocks in it than most. Over the coarse of this lab, I have introduced close to 65 stocks, or more, and have fairly consistently maintained about 50 stocks. For a portfolio with a beginning balance of a million dollars, I think that is about a right number, for the stocks I picked.

First, you have to pick good stocks, and that means good companies. Once that is done, then it is just a matter of allocation. But, the job is not done there.

Are the stocks diversified by sector? Now, I am not in every sector, and I don't think you have to be. But for a reasonably large portfolio, how few sectors is reasonable?

I am pretty good at the oil sector, and it could have been a good strategy for this game to put large amounts in just that one sector. In fact, I do have 40+% in that sector, as the sector has been a market leader, but the portfolio is comprised of about 20 comanies in that sector alone.

Well, before I get too windy, and bore everyone, a few sectors is OK in a real dollar portfolio, then just diversify within those sectors. Provided, if the market changes, you are prepared to diversify into other sectors. Without some diversification into other sectors, you may not know where to turn, in the event your previously outperfoming sector goes into a long term downturn.

So, to some degree, I am proud of my portfoio. Not only has it out-perfomed the market as a whole, and many other players, but is composed of good companies, and is well diversified.

Yes, I think for a portfolio of this size, it would be a management error to have much more than 5% invested in a single stock, and I think that rule should apply to most any personal portfolio.

Now, that said, the best use of the strategy lab, is to aide investors to find winning stocks, so that you can add diversification to your portfolio. The strategy lab is nothing more, or less, than a learning tool. Check out the portfolio's, especially in the open. Don't just look at the dollars or percentage gains, but track the stock, over some time. Maybe, jump into the lab yourself, and test a stock, before you decide to buy it for your personal portfolio.

Yes, my portfolio has some stocks in it that are in the red. Better there, than in my REAL portfolio?

And, I wish I had good news for investors, but I don't think we are at the bottom yet. Is that a reason not to invest now? I don't think so. Keep in mind, in times like these, where the DOW is down more than 10% this year, and may be going lower, your results may be far better. In a decidely bear market of late, this portfolio has GROWN by about 18% (yes, it fluctuates) in less than 6 months. Yes, in my mind, that is sucess!

Yes, maybe I am an optimist, but despite a treacherous market, I think you need to be investing for the future. And, this bear market will turn. Investing now, should have you well positioned for the beginning of the next bull market. Dare I guess when that might be? Not soon.
So, get busy, and GROW your porfolio NOW.

Pick your stocks well, but DO pick them! And I definitely encourage people to practice good investing strategies, and that means diversification! Happy investing!

So, in what may be my last post of this lab session, I would like to let you all know, that you too can join me,,, as I EAT BEAR.

And, of coarse, I do encourage you to use the strategy lab. It is both fun, and educational. Yes, I do mean PARTICIPATE, not just watch (but that can be beneficial too).