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Stress test

Discussion in 'Investing' started by TomB16, Oct 28, 2018.

  1. TomB16

    TomB16 Active Member

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    We're going through a period that has presented a small opportunity to stress test our portfolios.

    A quick analysis suggests we would have done better to take a bit more risk and take a bigger hit, but this is based on a record long bull market run followed by an extremely light correction. Overall, we're quite pleased with our situation.

    I've always done projections based on a crash being 50% purchase discount and a correction being a 30% purchase discount, with crashes occurring 10 times per century and corrections occurring 30 times per century. This is a brutally simplified model that is barely helpful in projecting worst case scenarios but it's the only way I know how to do it.

    Has anyone else been studying how their portfolio responded to recent downward market trends?
     
  2. WXYZ

    WXYZ Active Member

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    YES........I regularly consider my gain or loss on a daily, quarterly and annual basis in my concentrated 12 stock portfolio. I look at the percentage gain or loss compared to the SP500. I consider my concentrated stock holdings a moderately aggressive approach. That is why I start out any portfolio that I create with HALF the money in the three funds that I own in my portfolio. (SEE.....THE LONG TERM INVESTOR thread for my portfolio model) I have found that over time the stock side of my portfolio for many many years has beat the fund side. BUT, I continue to hold the funds since they give me a balance against my investing biases and a more broad approach to investing. Of course, my tolerance for risk is way higher than most people. This is a function of the fact that I am not dependent on my stock account for retirement or income needs.
     
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  3. TomB16

    TomB16 Active Member

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    Are the three funds you write of:

    SP500 Index Fund
    Fidelity Contra Fund
    Dodge & Cox Stock Fund

    ?

    Can you help me understand how these three are a hedge against risk?

    My tolerance for risk is pretty high, also.

    We have had no need of our market portfolio at the moment but, at some point, we will want to spend down that money. Actually, spending that money is the whole point for us. If we didn't need it, we wouldn't put energy into building it up.
     
  4. WXYZ

    WXYZ Active Member

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    I did not say they were a hedge against risk. I said:

    "they give me a balance against my investing biases and a more broad approach to investing."

    My bias is to hold a very concentrated portfolio of ONLY 10-15 stocks. By having about 50% of my money in these three funds I substantially broaden my stock exposure. This approach gives me broad diversification for about half of my money. At the same time it still continues my investing focus on the BIG CAP, DIVIDEND PAYING, ICONIC BUSINESS, WORLD WIDE, AMERICAN, side of the markets. I prefer to have exposure to what I consider the cream of the crop for mutual funds for about half of my money. I DONT want to have all of my eggs in the one basket of........my own thinking.

    SP500 Index - we know that the VAST MAJORITY of investors can NOT beat the SP500. This fund gives me exposure to the 500 largest businesses in the USA.

    Dodge & Cox Stock Fund - gives me exposure to a VALUE portfolio. Something that my concentrated, long term, stock portfolio does not necessarily do. Beats the SP500 at 3 year, 10 year, and 15 year. SP500 wins out at YTD, 1 year, and barely at 5 year.

    Fidelity Contra Fund - a premier fund for many years now. Gives me exposure to one of the few funds that for many time periods beats or equals the SP500. Gives me access to the investment picks and thinking of the very good management of this fund. For example this fund BEATS the Sp500...year to date, 3 years, 5 years, 10 years, and 15 years. SP500 wins out at...1 year. (data from Morningstar)
     
    #4 WXYZ, Oct 30, 2018
    Last edited: Oct 30, 2018
    TomB16 likes this.
  5. WXYZ

    WXYZ Active Member

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    Good thread TomB16. I suspect that some time over the next five years, perhaps ten, I will simply sell off my individual stocks and put all money into the three funds. I am nearly 70 now, and I will simplify things due to my age and the fact that my wife might be left with this portfolio and having it all in just the funds will make it simple for her to just let it ride for the long term. Since 90% of the "professionals" can not beat the SP500 regularly, and since the three funds meet or beat the SP500 (obviously the SP500 Index Fund does) most of the time which in my mind is exemplary performance,......that is good enough for me. I have been in the two managed funds for a long time and their performance has been very nice over that time.

    The other portfolios that I manage will have to be run by their owners when I reach the point where I believe age is becoming a factor in my money management.
     
    #5 WXYZ, Oct 30, 2018
    Last edited: Oct 30, 2018
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