Suggestions about specifying a current portfolio
Let's consider the case of starting with cash and no current portfolio
A good starting place is to specify a list of up to 12 different stocks, one for each of the twelve sectors of the market used in the portfolio selection tool:
Now we want to select a placeholder stock in each of these sectors in which we tentatively have interest. One simple way is to enter the following list as the current portfolio exactly as it appears here:
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| 100 ibm | ||
| 100 amr | ||
| 100 ebay | ||
| 100 dd | ||
| 100 ten | ||
| 100 ge | ||
| 100 hal | ||
| 100 cl | ||
| 100 mrk | ||
| 100 c | ||
| 100 ba | ||
| 100 cms |
No other entries are required. If you've also completed the login entries, just click on 'Submit'
On October 25, 2003 (using market data from Friday, October 24) these portfolio entries produced the following sector allocation under 'Current stocks':
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| Technology | 20.4 | IBM | (International Business Machines) | |||||
| Transportation | 3.0 | AMR | (American Airlines) | |||||
| Services | 12.7 | EBAY | (Ebay) | |||||
| Basic Materials | 9.0 | DD | (DuPont) | |||||
| Consumer Cyclical | 1.2 | TEN | (Tenneco) | |||||
| Conglomerates | 6.5 | GE | (General Electric) | |||||
| Energy | 5.4 | HAL | (Haliburton) | |||||
| Consumer Non-Cyclical | 11.7 | CL | (Colgate) | |||||
| Healthcare | 10.1 | MRK | (Merck) | |||||
| Financial | 10.9 | C | (Citigroup) | |||||
| Capital Goods | 8.2 | BA | (Boeing) | |||||
| Utilities | 1.8 | CMS | (CMS Energy) |
The portfolio selection tool replaced each of the above entries in the proposed portfolio except GE and CMS, and generated an 'Expectation multiplier estimate' of 8.0 and a 'Beta' of 0.7, lower than the beta of 1.2 of our starting portfolio. That's awfully good and considerably better than the result we should typically expect (in fact, it's so good we better check our math)! But take note of one of our trade-offs. To generate that high an expectation, the selection tool all but eliminated dividend-paying stocks, reducing our annual dividends from $773 to $76. You must assess whether that is consistent with your investment requirements (weighing growth against current income). If you want to retain or enhance current income in the selection process, enter '.01' or higher under 'div' in the entry screen. When we did that on October 25, except for GE the proposed stocks changed entirely, and the dividends for the proposed portfolio increased to $806 per year. But the expectation multiplier estimate decreased to 3.2. You've just seen a good illustration of the case for Income versus the case for Growth. Or the case for Growth versus the case for Income!
Here's a good place to start to express your predelictions about how much exposure you wish in each sector of the stock market. For example, you may have read that Conglomerates are difficult to assess and are lumbering giants and you'd rather avoid this sector. To express that view, just eliminate the '100 ge' entry (and please don't leave a blank line). You can also express your view of how much technology exposure you are comfortable with by increasing or decreasing the number of shares in IBM from the 100 shown. Or you decide that you are not interested in current income, but want to focus on growth. In that case, eliminate the '100 cms' entry, and remove the '.01' you entered under 'div'. This change will result in an increase in allocation in each of the other sectors for which there are entries, and eliminate the overall dividend requirement
If you are more conservative, you might consider exploring an increase in the size of the Transportation, Basic Materials, Consumer Cyclical, Consumer Non-Cyclical, Capital Goods, and Utilities entries. On the other hand, if you wish to take a more aggressive posture, decrease or eliminate some or all of these entries and increase the size of the Technology, Healthcare, and Financial sector entries. Start writing your own music and explore variations on a theme. You pick the theme. We'll play the music!
While you are trying out each of these variations, remembering to re-enter your password each time before submitting the change. And keep your eye on the changing Dividends, Beta, and Expectation multiplier estimate. This will help you generate an internal sense of the trade-offs you are implicitly making
There is no additional charge regardless of the number of 'Rank
Portfolio' analyses that are run during a session (separate charges are
applied for each 'Select Portfolio' analysis). The only charges in effect
are the basic charge for each market day's session and an incremental
charge for each different stock entered in the current portfolio. Market
data is updated to reflect the latest activity late in the evening,
after 10pm. Once a new day's market data is applied, a new session takes
effect