I have to sell some stock...

[Wildbill]

If one was truly trying to get diversification, they wouldn't buy SPY. The S&P is not cleanly diversified as the index is weighted towards large cap companies and then inside the index it is weighted to the biggest cap companies further. The SPY is far from diversified, for that get a total market index, I forget which symbol that trades under. Or just put the money in a Vanguard total market fund.

[adios]

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If one was truly trying to get diversification, they wouldn't buy SPY.

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Wrong if you mean diversification in a stock market portfolio. Right if you include the universe of risky assets.

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The S&P is not cleanly diversified as the index is weighted towards large cap companies and then inside the index it is weighted to the biggest cap companies further.

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Which is what systematic risk inherent in betas is measured by. Betas reflect the risk inherent in the current valuation of the stock market of which SPY is an excellent proxy for.

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The SPY is far from diversified, for that get a total market index, I forget which symbol that trades under.

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Ok I'll concede that SPY doesn't measure the "market portfolio" of the universe of risky assets in a CAPM sense. However, the measure of risk for stocks, beta, is determined by the variance in the valuation of the stock market as a whole of which SPY is a very good proxy for. If you except beta as a measure of risk then I'm right. The utilization of beta as a measure of risk is open to debate.

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I forget which symbol that trades under. Or just put the money in a Vanguard total market fund.

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Not sure what total market fund you're referring too. I suspect that it's represents more than just stocks. If that's the case the beta's (the measure of risk) of the stocks mentioned are not derived from this portfolio.

My assumption was that the portfolio of stocks listed by the original poster was an indication of a certain amount of money that he wanted to invest in the stock market with a certain risk-reward profile for the posters stock market investment. In order to achieve the return from this investment that is reflected by the aggregate betas in his portfolio of stocks he would undertake the least amount of risk by what I posted.

In order to achieve the return implied by the posters stock portfolio in a total market portfolio of more risky assets than just stocks, one would have to know the risk premium inherent with this portfolio. I'm not sure of how much data has been collected and how much research has been done to determine such a risk premium. Also I think it's fair to say that what a portfolio of all risky assets should consist of is open to debate. The idea of combining a market portfolio of risky assets with the riskless asset is based upon the fact that the covariance between the two is zero.

[adios]

Thanks. Actually it's based on the Capital Asset Pricing Model CAPM which evolved from the work of Markowitz.

[BadBoyBenny]

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Not sure what total market fund you're referring too. I suspect that it's represents more than just stocks.

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He probably meant something like and ETF based on the Wilshire 5000. There are some of these out there, but they are still market cap weighted so small caps are under emphasized.

If you really wanted both large and small/mid cap exposure then buying ETFs based on the Russell 2000 along with the Spyders might do the job better.

I don't know if this is really necessary though. The returns of the total market never deviate from the S&P over a long period of time, owning 500 companies pretty nuch eliminates any type of individual company risk, and will cover every industry. Also, I think (but I'm too lazy to research) that the S&P has done a little better over the last 30 or so years than the Russel or Wilshire indexes.

[Senor Choppy]

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I'm shamelessly looking for free stock advice here.

I have to sell a little stock to raise some cash for school.
Which of these would you sell?

GE
GM
Bristol-Myers Squibb (BMY)
Schering-Plough (SGP)
BellSouth (BLS???)



SGP seems to have the lowest rating.

Thanks in advance.

crash


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Sell either BMY or SGP, if you sell any of the others you're going to have half your $ in drug stocks (unless you own others you didn't mention).

I'm not a huge proponent of diversification, but if you only own a handful of stocks you are risking a lot if you own multiple companies in the same industry.