Theory vs. Reality

If you try and build a portfolio using MPT or Modern Portfolio Theory would you know how to do it? MPT was invented by Harry Markowitz in 1952 and he won a pulitzer prize for it. It's complicated, not only for investors to understand but to also implement.

As Warren Buffett likes to say "portfolio theory is just that - theory."

Investopedia reminds us that "at the end of the day, a portfolio's success rests on the investor's skills and the time he or she devotes to it. Sometimes it is better to pick a small number of out of favor investments and wait for the market to turn in your favor than to rely on market averages alone."

This is exactly what I try to do and keep practicing doing. That is to identify good quality dividend growth stocks that provide superior value.

You only need to look as far as Enbridge to realize how buying a stock on sale can produce superior long term results if you buy them at the right time. The stock was trading at $37.36 near the end of April and closed Friday 6 July at $46.69. That is a return of 25% in 2 months.

IOW the risk to Enbridge in April was to the upside. The stock had been beaten to a blood spot and it was being thrown away. I hung on to my shares because I believe that Canada needs pipelines and ENB was not going anywhere so the stock was a buy and NOT a sell.

If you subscribe to MPT you would never buy Enbridge or any stock like it. That is why I like to pick and choose individual stocks on sale. The gains can be spectacular for your long term financial health.

I'm a retired income investor so I always look for opportunities like this to come along. 

Let's look at my gambling watchlist which is a totally separate area of investing for me and see how the last trading week summed up.

Total portfolio is up 3.8% or $835.96

ALO 10%
PONY 8.%
LAM 5.7%
HIKU 2.8%
ACB 3.7%
MUX 4.2%
KAT 2.1%

Not bad picking 6/7 winners. I will delete LAM if it closes lower on Monday on higher volume. Momentum seems to have left the stock for now.

Gambling Portfolio

Not going as well as the watchlist but I'm only holding 3 positions for now and they are;

GSV 7.2%

APH .85%

THO 4.1%

Stock picks are basically flat. I am thinking of employing a buy on Monday and sell on Friday type of strategy for my gambling stock picks. I've never tried this so I may start with only one stock at a time. We'll see but as we all know, things work a lot different in practice than they do in theory.

I totally reject MPT in all it's forms and truly believe as an income investor you need to purchase DG stocks that pay you a rising and growing dividend to meet your current needs and in the future.

You need to be patient and NOT panic in the face of a downturn in the markets. These are buying opportunities NOT a time to sell. Matter of fact I never sell any of my DG stocks after purchase. This is left to my gambling portfolio and my play money.

My guru as mentioned before is Tom Connolly and he has this to say to subscribers, "To win we have to up end the false notions that have

developed with modern portfolio theory and return to the investing 

methods of the old masters, tried and true."

Tried and true because they have seen the results and not applied some mundane theory most pros use to charge fees and construct complicated portfolios. You can do this on your own and do it simply. My opinion.

Related Post: Risk-Take Some What Have You Got to Lose?

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