No. of Recommendations: 6
There are other folks on this board way more qualified than I am regarding investing in indexes.
Our (my bride and I) investing approach is geared around an understanding of Portfolio Theory mathematics (see link below). When only one stock is owned (as seen in many employment compensation situations), there is a high risk of major loss. By equivalently owning two (2) stocks, the risk is cut significantly. A portfolio's "Diversifiable Risk" approaches optimal levels with a 20 to 25 companies holding. The diversifiable risk difference between holding 10 companies versus 20 companies is not all that much, so we have always tended to have 8 to 12 holdings. That said, Berkshire represents about 45% of our public stock holdings, so our portfolio risk profile is mathematically likely comparable to a five (5) or six (6)holding situation. This does not unduly trouble us as we have ownership in a business and also own rental properties. I find it helps to contemplate the total risk involved with our entire collection of ownership situations. That said, I hesitate to buy more Berkshire because we do not want to further increase our portfolio risk beyond where it is now. This has become more of a concern in the past year as Berkshire has increased in value relative to the other stocks in our portfolio.
We have often contemplated having an index type of investment in our portfolio and have not because an attractive single stock situation usually becomes available. My kind of investment situation is a company having the ability to reinvest earnings at an attractive ROE year after year and also having a market capitalization to pretax earnings ratio of 10:1 or less. Berkshire has certainly fit that description in many past instances and commensurately loaded up the truck. Dollar Tree fit that description in September 2021. Markel fit that description in September 2022. I am hoping some others currently on the radar will fit that description some time in 2024 for our available cash.
https://seekingalpha.com/article/151352-portfolio-...All the best,
Uwharrie
