Re: Subject: Asset Allocation & Overlap pgm.

From: Randy Barnes <rbarnes@mindspring.com>
Subject: Re: Subject: Asset Allocation & Overlap pgm.
Date: Mon, 27 Jul 1998 21:19:31 -0400

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> I'm trying to gather opinions on whether the mutual funds I have contain
> enough diversification.  

> Baron Asset - 8.5%
> Janus - 10.9%
> Vanguard Wellington - 34.9%
> Vanguard Windsor - 24%
> Vanguard Windsor II - 21.7%

You can't seriously think you're should diversify more than this. In
funds alone you own 657 stocks and over 200 bonds! Add to this your
stocks directly held and you're way over diversified.  The mutual fund
companies/salesman love guys like you who read the slick grocery store
magazines and pay them billions of dollars a year.
 
Only one of your funds has any history of success beating the market;
Janus. It's a keeper and really the only one you should own.  If you
want some bonds, I'd use a little of the extra cash a purchase Treas.
Bills/Bonds directly.  The fact is that about 90% of all active managers
can NOT outperform the overall market. Your Portfolio is a perfect
example.  This portfolio will never do as well as the overall market. 
Not only that, you're paying somebody fees for the privilege.  You even
have complex statements and tax consequences if you are not sheltered.  

What's my point? First of all do not sell anything without considering
all the angles. If you have big gains you may have big taxes.  Get some
professional advice here, I don't own taxable funds and don't want to
even think about this topic (headache!).

Educate yourself to what's what. I have been researching the facts for
our investment club and have found that the facts are indisputable. They
just aren't sexy and don't sell magazines, but they are the facts
nonetheless.  Passive management is king, and consistency is queen. 

Forget adding more money in your funds, but rather start buying yourself
SPYders every month. This is the S&P index all rolled up into a share of
stock traded on the Amex. (Ticker = SPY).  It' no muss, no fuss, and
will out perform all but the very best or very lucky. Open your account
somewhere online and pay only $8.  (We trade at Waterhouse at $12 and
like the option of actual people to talk to.)  What could be easier.
You'll gain financially by an increased performance and increase your
quality of life by not trying to figure out if you're diversified
enough. And whatever the "overlap" thing is just another waste of money,
and or energy. 

If you want to hear from James O'Saughnessy and a bunch of Nobel prize
winners on this topic then follow the link, and read the book below  and
"bone-up" on this stuff. It's the real thing!


How Really Smart Money Invests - from FORTUNE Mag, July 6, 1998
http://www.pathfinder.com/fortune/investor/1998/980706/dfa.html


What Works on Wall Street by James P. O'Shaughnessy- (at your library?)
http://www.amazon.com/exec/obidos/ASIN/0070482462/o/qid=901586867/sr=2-1/002-5435030-4975250


OK, OK. I was only going to offer a comment, but I'm  just getting
started. Let me stop now or I'll ramble all night. My hat goes off to
you for your fantastic efforts and sacrifices to scrape together such a
handsome nest egg.  You're obviously a fine American and one we all need
to emulate.  The REAL secret to this stuff is to sock that cash away
SOMEWHERE. What fund or stock you buy is much less important that buying
it on a consistent basis.

Best Wishes,

Randy Barnes



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