Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
Of course not. But that’s what happens when you buy a fund with so
many holdings. The more stocks you own the weaker your results.
You get closer to the index every time you add another name. If that’s
your goal, fine, especially since 80 percent of active managers can’t
beat the index. But I believe it can be done if you pick the right
companies.”
REMAINING FOCUSED
Don Yacktman is another big believer in concentration. He did
some back-testing, which showed if he had stuck with a smaller
number of names in his flagship Yacktman Fund, he could have
considerably beefed up its overall results. So in 1997, he launched a
new fund, called Yacktman Focused. It is a nondiversified offering
that usually holds no more than 15 of his favorite ideas. “Some feel
this approach increases risk, but I would argue it actually lowers it,”
Yacktman insists. “Overdiversification is a symptom of poor or superficial
research. If you feel comfortable with the knowledge bank you
have and can find only a handful of good companies selling for 50
cents on the dollar, or whatever your discipline might be, why should
you steer away from your course and buy lesser companies at a
higher price?”
DIVERSIFY WITH BONDS
To Robert Stovall, diversification means more than spreading your
equity holdings across a wide range of companies. It also means
owning some bonds and convertible securities to cushion volatility.
“I buy Treasuries even for my younger clients,” he says. “It adds to
liquidity. I would never have a 100 percent equity portfolio, but that’s
me. I want to reduce risk and add to income. It’s what most of my
clients demand. Even if you don’t need any income, I think there is
still room for bonds. Of course, fixed-income portfolios will move in
price along with interest rates. If you want to be more aggressive,
sprinkle in some convertibles as well. Adding these instruments to
your portfolio will smooth out its performance.” Not everyone agrees
with Stovall’s strategy of holding bonds even for younger investors.
As previously mentioned, Yacktman has one client in her nineties
who is almost fully invested in equities. However, if tempering market
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