AI
Thursday, September 25, 2014 5:17:25 PM
That image
is fractal - similar pattern can be seen at both the small and large scales. Take for instance this set comprised of something like Steve's choice of holdings that I made some time back (not the exact same set as Steve's, but quite a bit of overlap).
If you created a similar left to right (sorted) range of worst to best performers you'd see a similar overall pattern to that first image above.
Generally pair the most worst with the best and the next worst with the next best ... etc and the two cancel each other out, leaving a surplus middle core left over - which might be considered as the overall portfolio uplift effect.
Simply the winners tend to counter balance the losers - and more (to leave positive bias). That positive bias being fractal means that the equal weighted set of 20 odd countries is more likely to provide a overall positive reward (tend to be more toward the right tail than the left tail).
An approximately equal weighted blend of stocks from a range of countries is safer than over-weighting any one single country and is little different to diversifying across sectors or stocks rather than over-weighting individual sectors or stocks.
Some say that you need to hold the entire haystack in order to capture the few best performers and that its those best performers that drive overall gains - but you don't (and it isn't). Consider for example the long term comparison of the Dow - which is comprised of just 30 stocks, with that of the S&P500 which is comprised of 500 stocks. Long term the two have tracked each other reasonably closely. If you created best to worst sorted individual gains you'd see a similar pattern to the image above for both, but with the Dow having more granularity in being a smaller number of samples than the S&P500 set.
If you do go for individual stocks, just ensure that no one stock is too much of the whole. 30 stocks equally weighted and each stock represents a 3.3% risk factor, 50 stocks and each stock is a 2% risk factor. Entire indexes can gain/lose 2% in a single day. Also make sure you diversify stock holdings widely, across sectors, factors, styles, countries, regions, as you don't want too much weighting in any sector/factor/style...etc when that sector/factor... turns out to have been the worst choice.
is fractal - similar pattern can be seen at both the small and large scales. Take for instance this set comprised of something like Steve's choice of holdings that I made some time back (not the exact same set as Steve's, but quite a bit of overlap).
If you created a similar left to right (sorted) range of worst to best performers you'd see a similar overall pattern to that first image above.
Generally pair the most worst with the best and the next worst with the next best ... etc and the two cancel each other out, leaving a surplus middle core left over - which might be considered as the overall portfolio uplift effect.
Simply the winners tend to counter balance the losers - and more (to leave positive bias). That positive bias being fractal means that the equal weighted set of 20 odd countries is more likely to provide a overall positive reward (tend to be more toward the right tail than the left tail).
An approximately equal weighted blend of stocks from a range of countries is safer than over-weighting any one single country and is little different to diversifying across sectors or stocks rather than over-weighting individual sectors or stocks.
Some say that you need to hold the entire haystack in order to capture the few best performers and that its those best performers that drive overall gains - but you don't (and it isn't). Consider for example the long term comparison of the Dow - which is comprised of just 30 stocks, with that of the S&P500 which is comprised of 500 stocks. Long term the two have tracked each other reasonably closely. If you created best to worst sorted individual gains you'd see a similar pattern to the image above for both, but with the Dow having more granularity in being a smaller number of samples than the S&P500 set.
If you do go for individual stocks, just ensure that no one stock is too much of the whole. 30 stocks equally weighted and each stock represents a 3.3% risk factor, 50 stocks and each stock is a 2% risk factor. Entire indexes can gain/lose 2% in a single day. Also make sure you diversify stock holdings widely, across sectors, factors, styles, countries, regions, as you don't want too much weighting in any sector/factor/style...etc when that sector/factor... turns out to have been the worst choice.
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