Many of us run into the problem of rebalancing a portfolio after a staggering price rise cycle in AAPL.

How do you address a portfolio that ends up with a high percentage of assets invested in AAPL?

Do you grin and ride or do you take strategic gains and diversify into other equities at least a bit to have some modicum of perceived risk control?

It’s only money. Definitely grin and ride while AAPL is less than 50% of you nett worth (not portfolio). Unless you want/need to spend it soon of course . . . .

“Wide diversification is only required when investors do not understand what they are doing.”

“Our favourite holding period is forever.”

Warren Buffet

DawnTreader,

Very good question.  I don’t have an answer, if fact, I’m hoping that you and SG could provide me with a reasonable advice .  Meanwhile I’ll grin and ride.

Sleepygeek,

Why 50%?  Pluck from the sky?  Did a computation.  AAPL comprises more than 60% of my net worth. 

DawnTreader, Sleepygeek

My only ‘diversification’ strategy is to keep selling AAPL to repay housing loan.  Any suggestions on how to diversify?  Note:  No real estate please , already staying in one and holding two rentals.  Thinking of other stocks but realize stocks tend to move in tandem (not exactly alike nor similar in magnitude, but tend to go into bull phase together and into bear phase again together).  I’m thinking of buying into dividends paying stocks and establish an annuity - that would reduce my multi-year prospective return drastically.  However, it would give me a stream of cash flows from diversified sources - rentals/dividends paying (good during inflation) and annuity (good during recession).  Views?

Edit:  Would like to hold AAPL forever , 10 years already .  But with no dividends, ...

This is a great topic.

The main reason I have not been more aggressively long AAPL over the last 6 months is that after seeing AAPL become 50% of my non-retirement portfolio - and a very large portion of my retirement portfolio, I decided not to get greedy.

I agree that over-diversifcation is just a sure way to mediocore returns and it’s better just to buy a bunch of SPY than be “diversified” with 50 different stocks.

However - as great as AAPL is fundamentally - it’s the unexpected, the so called “black swans” that can destroy wealth very quickly.  It’s very unlikely that there will be a catastrophic AAPL-specific event (the dreaded Jobs-gone scenario) anytime soon - but “what if”?

Similiarly, it is very unlikely the broad market will have a 1987 type crash in the next few years - but what if?

I don’t want to risk having to wait until I’m 65 to retire.  All I need to do is modestly outperform the broad market and I’ll be able to work very part time in another 5 yrs.

I’m happy now to pull in a steady, though modest, monthly income from trading AAPL and other options - without the potential for a grand slam by being “all in”.  My returns may be much less on an absolute basis but on a risk-adjusted basis, they’ve been very good.

For those willing to be balls to the wall - “all in”  AAPL all the time - I wish you luck !

There’s no other company I follow/understand as much as Apple so I am only in that stock.

My diversification consists of typically

Stock     at least 30%, as much as 50%
LEAPS     at least 25%
Options   up to 20%, short term (only when I can keep an eye on them)
CASH     up to 50% 

This lets me sleep at night, and the ability to get some work done during the day.

mtdoc,

Thanks for sharing.  Any specific view on “dividends n annuity” combo?

jimlongo,

Welcome to the AAPL-only stock portfolio.  Good diversification .

[quote author=“Mace”]mtdoc,

Thanks for sharing.  Any specific view on “dividends n annuity” combo?

I’m not sure what you mean.  Buying dividend paying stocks and annuities? 

[quote author=“mtdoc”][quote author=“Mace”]mtdoc,

Thanks for sharing.  Any specific view on “dividends n annuity” combo?

I’m not sure what you mean.  Buying dividend paying stocks and annuities? 

Yes.

[quote author=“Mace”][quote author=“mtdoc”][quote author=“Mace”]mtdoc,

Thanks for sharing.  Any specific view on “dividends n annuity” combo?

I’m not sure what you mean.  Buying dividend paying stocks and annuities? 

I guess that would certainly be a relatively low risk way to stay invested. Does that approach beat the indices long term?

I claim no financial planning expertise.  I have most of my retirement funds locked up in 401K and 457 plans mostly in mutual funds - though I try to include funds that have a big stake in AAPL. Some of these funds are also highly dividend-paying stock intensive.

I also have a roth IRA I trade which is about 70% AAPL.

My active trading accounts are for short term option plays (buy played against LEAPS for tax purposes) and hedging downside risk.

[quote author=“mtdoc”][quote author=“Mace”] ... Buying dividend paying stocks and annuities ... ... I guess that would certainly be a relatively low risk way to stay invested. Does that approach beat the indices long term? ...

No clue.  Just want a hands-off cash stream that is stable vs all kinds of economic conditions, that can fund my daily expenses.  Problem with stocks like AAPL, no dividends, can only sell stocks away or sell covered calls to raise cash - volatility is also too high for comfort - not sure how long I can withstand, believe as I get older, I will be less able to tolerate such high volatility.  Btw, after more than a year of trying, I don’t have much success in selling covered calls vs AAPL - always get called away.  However, I’ve good success vs T, C and UNH - easy to predict but not much premium.

I like to have things I understand. And in old age, you essentially want to be cared for by the next generation, so invest in something they will want - in my view residential property is a reasonable choice; if, say, 25% of earnings go on home rental, then 4 rental properties should give you as much income as you need. - Unless bird flu wipes out 60% of population but not you - when there will be oversupply!

As regards the 50% of net worth; that’s basically also a Buffet suggestion, I think. Since you also plan to hold forever, and this is your best choice of investment, of course you hope that percentage will increase. But the original other half is safe from your own delusions.

[quote author=“sleepygeek”]I like to have things I understand. And in old age, you essentially want to be cared for by the next generation, so invest in something they will want - in my view residential property is a reasonable choice; if, say, 25% of earnings go on home rental, then 4 rental properties should give you as much income as you need. - Unless bird flu wipes out 60% of population but not you - when there will be oversupply!

As regards the 50% of net worth; that’s basically also a Buffet suggestion, I think. Since you also plan to hold forever, and this is your best choice of investment, of course you hope that percentage will increase. But the original other half is safe from your own delusions.

Good thinking .  Reason for me having three residential properties is based on the simple thinking that I need one to stay in, give each son a residential property once they’re married, since have two sons, so I need total of three .  Once my sons have my properties, I would need a new source of cash, hence thinking of dividends paying stocks + annuities.  Why not buy another rental property?  Because is more hassle than dividend-paying stocks + annuities.  Views?

I suspect I am in the minority here; I believe that one can hold a large number of stocks and still outperform the averages.  My rules are 1) to hold between 20 and 40 stocks; 2) a “full” position is 4% of portfolio; also allowed are half positions and occasionally double positions.  3) no one stock can account for more than 20% (I am there now with AAPL; 4) cash portion can range from zero to 50% based upon my view of the overall value propostion; 5) trading funds are totally separate and not included in any of these calculations; I assume I will lose all trading funds, though now that I understand money management, that is not not likely.

As a general rule, I don’t find it hard to find companies that I think will outperform.  In times when it is difficult, it is a sign to raise cash.  In 1999 I actually got to more than 50% in cash, but that is the exception.  I just could not find enough stocks I liked.  I am not really “diversified” because I don’t invest in all market segments, only the ones I like.  For example, right now I have no utilities, no consumer staples, lots of tech, lots of basic materials, lots of energy.

Back to the OP:  One way to react to AAPL becoming a large portion of your portfolio is to hang onto it, but add some hedges.  For example when my holding recently went over 20%, I sold some out of the money November calls with enough delta to bring me back down below 20%.  If those calls expire worthless, then I can sell some more.  If they get exercised, I have a nice additional profit.

capablanca

Thank for sharing.  I’ve wanted to migrate into your kind of portfolio but ... after much considerations, felt that I don’t have enough oomph to identify and track that many stocks.  An index (S&P 500) fund + AAPL + a couple of dividend paying stocks is now my ideal stock portfolio.  Have been building up the index fund for the last five years.  Have not bought any dividend paying stocks yet ... return from AAPL is so good is so difficult to sell them to buy into other stocks ... I know is a good problem to have.  But as pointed out by mtdoc, I’m excessively “over-weighted” in AAPL - struggling to reduce its weight ... just can’t pull the trigger.  Any suggestions?

DawnTreader

Still waiting for your proposal on how to deal with AAPL-only stock portfolio .

[quote author=“Mace”]capablanca

Thank for sharing.  I’ve wanted to migrate into your kind of portfolio but ... after much considerations, felt that I don’t have enough oomph to identify and track that many stocks.  An index (S&P 500) fund + AAPL + a couple of dividend paying stocks is now my ideal stock portfolio.  Have been building up the index fund for the last five years.  Have not bought any dividend paying stocks yet ... return from AAPL is so good is so difficult to sell them to buy into other stocks ... I know is a good problem to have.  But as pointed out by mtdoc, I’m excessively “over-weighted” in AAPL - struggling to reduce its weight ... just can’t pull the trigger.  Any suggestions?

My personal definition of “dividend paying” includes stocks of companies who repurchase their own shares on the open market.  I believe this is even better than dividends for those investors in taxable accounts.  With that definition in mind….....

Grant Prideco (GRP) makes pipe for drilling oil wells.  13x PE.  Nice growth.
XTO Energy (XTO) buys gas & oil properties and increases their value.
Cemex (CX) cement and building materials 10x PE.  South America play.

[quote author=“capablanca”]My personal definition of “dividend paying” includes stocks of companies who repurchase their own shares on the open market.  I believe this is even better than dividends for those investors in taxable accounts.  With that definition in mind….....

I thought if you hold a stock more than 60 days then dividends are taxed at the long term capital gains rate.  Is this correct?