In his latest column for Canada’s Globe and Mail, Validea CEO John Reese explains why investors would be wise to approach building a portfolio in the same way they’d approach building a basketball team.
Specifically, Reese talks about why investors shouldn’t confine themselves to a certain style or size of stock — which is what many investment funds do. “Good players come in all sizes; different players do well in different situations. Picking only centres limits the pool of talent from which you can choose, and leaves you with weak spots,” he writes. “Unfortunately, when it comes to picking stocks, that’s just what a lot of money managers do. Many mutual funds focus only on a specific ‘style-box’ category — large-cap value stocks, for example — filling the fund primarily or entirely with just that type of stock.”
Style boxes are useful for institutional investors, Reese notes, but he says that for individual investors they simply limit opportunities and lead to a lack of diversification. He looks at a trio of Canadian stocks that run the gamut in terms of size and style, all of which get high marks from his Guru Strategies, which are inspired by some of the world’s best investors. To read the full article, click here.