Mimicking the Workshop Portfolio
People are already planning to follow the Workshop Portfolio. That's a bad idea even if the portfolio turns out to be dynamite. It's bad because the Workshop Portfolio isn't "right" for most investors, it was designed for a specific purpose -- one that's not likely to be identical to your purpose.
By Ann Coleman (TMF AnnC)
November 30, 2000
It's starting. I knew it would. People are thinking about copying the Workshop Portfolio and it's not even here yet.
From last night's email:
"I have a comment on the rapidly developing Foolish Workshop Official Port (FWOP). The FWOP, as I understand it, is going to funded with you own money. Now, it can only be assumed that you intend to make money from this investment and provide insight into the workings of various strategies. Yet, it has been frequently said 'This should not be copied.' Well, why not? You have the best advisers MI can provide with the most comprehensive knowledge of the entire MI process. How could one new MI investor develop a port as good as FWOP?"�
First, let's get one thing straight. FWOP? Please! I can't live with a portfolio that sounds like a flat tire. �
Now that that's cleared up, I'm glad this Fool wrote in. I'm sure lots of folks are asking themselves exactly the same thing. And, yes, I do intend to make money with the portfolio. But then I intended to make money with the Foolish Four. And with those Iomega options I bought in the summer of 1996.
I know that there is something of an implied contradiction when we say "Don't Mimic Us" while posting examples of our portfolios. This particular conundrum has been with the Fool for six-and-a-half years now so I guess it isn't going away any time soon. �How do we present examples without seeming to endorse specific stocks? �I don't know the answer to that.
The Workshop Portfolio will have the benefit of scrutiny by some of the brightest people I know. �Right now, a wonderful thread is running on the Workshop discussion board that really gets into the nitty-gritty of designing a portfolio. I urge everyone considering investing in any of our mechanical strategies to read it. The thread covers everything from the strategy mix to holding times to rebalancing policy to portfolio size to trading costs to... well, you name it. �The discussion is exactly what I was hoping for when I announced a potential portfolio blend in yesterday's Foolish Four report. ��
What is emerging is a consensus on "best practices," developed by people who have been running their own Workshop portfolios for two or three years. So why shouldn't you just take what we come up with and duplicate it?
Well, you can. Of course you can. Part of making your own decisions is the freedom to decide to follow someone else's advice. �We all do that every day.
But one size rarely fits all. We are deliberately including more strategies in this portfolio than the dollar size justifies. If I were running this portfolio privately, I wouldn't use five or six strategies, I'd use two or three. It's less trouble and it keeps trading costs down. In fact, if we have a marginal year next year, the trading costs could make the difference between beating the market and being beaten by the market.
This portfolio is designed to be a teaching portfolio and to "show off" as many strategies as we can. Does that sound like your situation? �Most investors will use no more than three strategies. If you haven't been following the discussion closely, how are you going to know which three to pick?
Yesterday's proposed blend has three short-term strategies and three annual strategies. The annual strategies are ideal for taxable accounts and for smaller portfolios where trading costs are critical. The monthly strategy is quite likely to be eaten alive by commission costs.
Motley Fool regulations absolutely require prior publication of portfolio picks which means just about everyone will get a better price. And it's quite possible that the picks will get enough outside attention that the price will spike on Friday afternoon right when you are trying to buy them. You still sure you want to duplicate this portfolio?
And, you know, we could just be flat-out wrong about the strategies chosen for the Workshop Portfolio. Even if the strategies are sound, aren't the result of random chance, and work well together, we could be wrong about the right time to start. There's a big element of chance when you start a portfolio. Pick the wrong week and you could lose money while the same strategy started a week later rakes it in. �
So if you want a strategy that's tailored to what I am trying to accomplish (beyond making money), that has to announce its trades in advance so that mutual fund companies have time to drive the price up, that holds too many stocks for the cash available, and that doesn't have to worry about paying taxes on the gains, by all means, duplicate it. But I think you can do better.
Fool on and prosper!
