[split] What is a realistic return on value investing?

[moneyandco]

Thanks much... so what is the risk number you use? 30, 90 or 180 days volatility?

So what do you do if it is a good stock with bad volatility (for example those in cyclcial industries or commodities) according to your report?

T10 is basically the top 10 contributors / bottom 10 contributors (risk adjusted basis, not by asset value) in the portfolio. The higher the ratio, the more unevenly spreaded between different counters it is. I intend to maintain it within 1.5 - 2, anything more than that indicates over exposure on a selected group.

Isn't a big number a good thing because it shows there are concentrated stocks on a risk adjusted basis that are performing very well? I would understand the logic of keeping to 1.5-2 if it is NOT risk adjusted.

These are monthly volatilty numbers over either 5 years (60mth) or incep (102mth) period.

I have no interest in individual stock or industry volatitiy per se. The volatility measure is just a way to keep track of portfolio consolidated risks and how it compares with diversified indexes and supposedly hedged funds. The portfolio no. also allows people to calculate common ratios like Treynor or Sharpe if they are interested in that sort of thing.

In an ideal world where risk modelling works perfectly fine, theoretically the ratio should be very close to 1.0. However, there are limitations to how you can quantify risk and hence I allowed a broader band of up to 2.0

Anything above that means the portfolio is too slanted and relying on too few basket of stocks within to generate a disproportionate share of returns.

This is where my approach probably differs from most forumers here whom I understand are practicsing highly selective stock picking and generally have pretty concentrated portfolios. The common outperformance profile for such an approach is to witness a few stocks delivering the big returns and even out other counters that are less than ideal either due to gestation or errors.

From a portfolio management perspective, I do not like to rely too much gains derived from too little counters to be driving the whole thing which is essentially what a T10 > 2 is saying, so I will take action to minimize that. It is a little similar to what most people who follow mechanical asset allocation approaches call "rebalancing", but I do not like such strictly by the book mechanics which I feel doesn't respond well to actual market dynamics, so I ended up devising something of a halfway house between strict rebalancing and individual discretion.

I know this is probably a little counter intuitive to most intrinsic value approaches, but yea I've thought through that on a philosophical and implementation level and feel it's the best approach for me.