Portfolio Weighing

[cutz]

Hi Guys,

I belong to the school of thought that stock picking is a waste of time so i pretty much only invest in the top twenty, for you academics out there what's more appropriate? Total market cap of top 20 >> work out the percentage of market cap each stock represents >> allocate that percentage to the available cash to that stock.

Or equal cash for each stock.

I originally have been working to the first method i described but it doesn't look balanced as things are skewed towards the big stocks.

Any thoughts.

 

[skyQuake]

Hi Guys,

I belong to the school of thought that stock picking is a waste of time so i pretty much only invest in the top twenty, for you academics out there what's more appropriate? Total market cap of top 20 >> work out the percentage of market cap each stock represents >> allocate that percentage to the available cash to that stock.

Or equal cash for each stock.

I originally have been working to the first method i described but it doesn't look balanced as things are skewed towards the big stocks.

Any thoughts.

If you're doing the first method, might as well buy a ETF or index fund. Save yourself a lot of rebalancing and brokerage fees.

 

[Boggo]

If you're doing the first method, might as well buy a ETF or index fund. Save yourself a lot of rebalancing and brokerage fees.

Agree entirely, STW fund for that situation.

 

[Sugar Dunkaton]

yes, you are going to do your head in (and your account balance after commissions) trying to rebalance your portfolio when it is required.

 

[cutz]

Agree with you guys regarding EFT's but that doesn't really suit my situation because i pretty much use options to enhance returns.

Seems that initial consensus is market cap weighing as opposed to equal weighing. ?

 

[cutz]

yes, you are going to do your head in (and your account balance after commissions) trying to rebalance your portfolio when it is required.

Top twenty isn't too bad, i got a spreadsheet up that works it all out using both methods, i'll be happy keeping it within the ball park, perhaps adjust twice a year, shouldn't be a problem.

I was more after an opinion on which method is more suitable for portfolio weighing, pros and cons for each method.

 

[motorway]

Equal weight
But the Extra returns will come from the rebalancing timing

and I would adjust this depending on what part of the market cycle

There is and would be a lot of research out there on this

The right time frame
Allows the max trend before the rotation and mean reversion

I would use a moved base and not a time based switch
rebalance after a % threshold

This will get that Timing better

Equal weight
because You will catch some of the momentum effects
and smaller stock effects..

The top Twenty over time rotates
Mkt weight you always are most in the current winners

Equal weight when themes change
eg resource vs Financials

You will be overweight in the new winners
I would not rebalance too often

As I said there would be a lot out there to read

motorway

 

[skc]

For only 20 stocks I would probably just go equal weighting.

Or a simplified system.

BHP/RIO - 25%
Big 4 + QBE + AMP - 25%
FGL, WOW, WES, TLS, WDC, NWS - 25%
Others - 25%

From what I recall, within ASX20 it is quite skewed to the top 6 or 7.

 

[cutz]

Thanks for your thoughts guys,

I think the argument for equal weight seems a little more balanced, makes a big difference up the top end.

 

[trent37]

I would like to invest in the energy index XEJ. I cant find anywhere that i can purchase the index or a fund that follows the index other than CFD's. If anybody could tell me how i can invest in the XEJ (other than buying all the stocks or CFD's) that would be super. Thanks.