Moon, a Controlled Greed.com reader, asked some questions in his comment to this post of last week. I’ll answer them here for him and other readers.
Are all your long-range funds in the portfolio?
The vast majority of my investment funds consist of my positions in the “Current Holdings” menu at the right.
I also hold shares in three companies not in that group -- NipponKoa Insurance, Korea Electric Power and Audiovox. I bought those long before launching this site. They are not included in the “Current Holdings” menu because I limit those names to positions I’ve established or added to since this blog’s launch in April 2005. Regular readers know I’ve taken profit in Korea Electric Power and Audiovox.
I'm also holding a decent amount of cash.
Does each pick involve some regular unit of cash, or do you throw whatever cash is available at the pick?
I typically put 4% to 5% of the portfolio’s value into each position.
Do you reinvest dividends, or marshal them for future picks?
I am not reinvesting dividends. But in my posting the other day about Bill Thomas and Capital Southwest, I stated that if I ever bought that stock I’d reinvest in that case.
And regarding longevity, how did you settle on the 3-5 year holding period? Philip Durell of the newsletter Inside Value (I was a subscriber for a year) states the same expected holding period for his picks, so I was wondering if you and he are getting that timeframe from the same place, or perhaps you each derived it independently. Does it have anything to do with the elusive "business cycle"?
Companies I invest in typically have “problems” -- real or perceived. If I’m right, these are short-term challenges that will be overcome and recognized by the market later. Sometimes I get lucky the whole process takes a few weeks or months. Those are exceptions. Usually it takes several years.
I also wonder about information overload: do you see yourself topping out at a certain number of holdings? I'm most certainly not questioning your mental faculties; it's just that one human brain can only efficiently service a finite number of things at one time.
I agree. I’m just one person. For me a fully invested portfolio is 20-25 companies. I could perhaps go as high as 30 -- but I couldn’t keep track of much more than that and do a good job.
The number of stocks to hold is a personal decision. Seth Klarman has stated that a fully-invested portfolio can be as few as 10 or 15 stocks. He's right, though I wouldn't be comfortable with that number.
On the other hand, I couldn't hold 100 securities like some managers do.