Saturday, December 04, 2004
Don't buy the stocks that I hold in my portfolio!
- You don't know me, or my motives. That should be reason enough.
- I don't do extensive due diligence on the stocks that I own. I have over 40 stocks in my portfolio. I don't have the time or the energy to virgorously research each company. Typically, I look at a company's financial statements, the latest 10Q, and whatever news items about the company that I can find. And that's about it. Some of the companies that I own will turn out to be dogs, and perhaps even miniature Enrons.
- I won't tell you when I am about to buy or sell a stock. If I did, the extra competition for my order would reduce my profits. I don't want that.
- The stocks I own are especially volatile. I tend to invest in microcap stocks with little or no analyst following. These stock are prone to wild swings in prices. I use various techniques, ranging from extensive diversification to short-selling high-beta securities, to limit the aggregate volatility of my portfolio. Unless you do likewise, your portfolio may suffer large irreparable losses.
- Just because I own a stock does not mean I would buy it now: Some of the stocks that I own have significantly increased in price since I bought them. Hence, their potential for further spectacular returns may be limited. I may also hold some stocks simply to avoid the tax liability that would come from selling them (especially if I’ve held them for less than a year).
- I've been very lucky so far. I've beaten the S&P 500 and NASDAQ by over 5 percent per month on a risk adjusted basis since I started investing. I don't expect (although I do hope) that I will continue to do so well.