Bylo Selhi wrote:Taggart wrote:Some people are going to like #9, I don't. It's too one sided in favour of funds. He's like saying, funds are good and individual stocks are bad. Well, the fact is that some funds, don't bounce back either. I've seen, and read plenty about that since the early 80's.
Clements seems to be trying to differentiate between systematic (market) risk and the risks that come from owning a (presumed) small number of stocks. The former can't be avoided or mitigated through diversification in the same way the latter can (unless, of course, your stock portfolio approximates a broad market index fund.)
Yes even entire markets can collapse and never recover [or in the case of Japan, take decades to recover] however the risk of that happening is lower than it is for an individual stock or even a small basket of stocks. And even that can be mitigated by owning a portfolio of various asset classes [or even just EAFE instead of the Nikeii index.]
Personally I think this definition of risk in a portfolio of individual equities is way overblown. As for diversification, and the number of stocks held, it all depends on what you hold in there (large blue chip, GARP, small growth, small value, deep value etc, etc.). These are all different entities, with different levels of risk. Even then, it depends on the person. What one person considers adequate diversification, may not be the same for another.
When it comes to what I mostly own, outside of a tax shelter, high yielding, dividend growth, aside from Enron in the U.S., and the old Royal Trust here in Canada, I haven't seen too many large cap stocks blow themselves up. Usually they give you ample time to get out, if you don't like the fundamentals any more.
In the withdrawal phase, many people don't mind chopping down the forest. I prefer to just eat the fruit from the trees, and hopefully plant a few more trees along the way.
Note, I do own equity funds in the RSP's, but including the U.S., they are all international. If someone wants to own Canadian equity funds, that's fine with me, but if someone says or implies I shouldn't own individual equities, I just turn around and say, "yeah, right".