investment allocation?

[denali]

Do you think John Bogle is correct in saying you cannot beat the overall market so just buy the whole market, an index fund for example S&P 500. Or is Warren Buffett correct in saying buy only a few things and watch them very closely, a concentrated fund for example Janus 20.

 

[woodie1]

I prefer to spread my risk over the market rather than concentrate it in a few companies. On the upside I may not get as good a return but it sure beats holding a lot of a company that tanks. The Vanguard S & P 500 (VFINX) has been a great vehicle for me but I also have other Vanguard Funds that are more concentrated in one area or the other to catch a little more growth when possible.

There are several Funds that beat the overall market every year but it is hard to know which one will do it each year. Same for stocks.

My $0.02

 

[kranky]

I think Buffett's strategy works for him, but not for the average investor. Index funds take much of the risk out of focusing investments in just a few stocks. And with the growing interest in index funds, more money gets funneled into those stocks which make up the index - that helps keep the price up.

Most people don't have enough money to invest to justify buying individual stocks. I'd bet that the people who bought Priceline stock at $160 thought they were buying a good company, and now that it's down to $5 there's probably some of those people still holding on to it. Of course, in the last couple of years the Internet craze has made a lot of money for people who now think they are astute stock pickers, when in fact they happened to be in the right place at the right time.

Peter Lynch wrote a couple of books which outline strategies for buying individual stocks which you may want to read for a different perspective.

 

[jjm]

Every major study proves that money managers underperform versus stock indexes. As well, active managers usually have to cover a higher expense load before they contribute anything to their performance for investors.

Are there exceptions? Sure. But these exceptions are short-lived, and no one really has found a reliable formula for picking a top performing fund in advance. Past performance is no guide. Several studies have shown that, as a whole, last year's stars tend to be this year's laggards.

Janus 20, because of its high concentration in just a few stocks, is generally forced to buy larger cap issues. Therefore, it tends to move somewhat in line with the indexes.

In stock investing, diversification has a large impact on performance. For every investor who put all his/her dollars into Intel and won big, there were many others who got clobbered for "putting all their eggs into one basket."