Rethinking my 100% active portfolio

[Zemergefen]

Hi everyone, 

 

I am reaching out for some perspective on value / portfolio construction. I've always considered myself a value investor.

However, year to date my portfolio is down while the S&P is up considerably.

 

My current  portfolio ( Fairfax 33%, CPNG 13%,  Brk 10%, Nu 8%, insurance brokers 8%, MOH 5%, PYPL 5%, Amrz 3% the rest is cash and bonds).

I don't hold any index funds but the opportunity cost of sitting out these broad market moves is becoming hard to ignore. Starting to question if my 100% individual stock approach is the best for me long term.

 

Do you guys use index fund for the core portfolio and pick individual stocks where you have high conviction?  What's your typical split between passive and active? 

 

Appreciate any advice. 

 

[moatrep]

I think the insurrance companies will give you a + from float (more so Fairfax), berkshire will behave like a fusion between cash and the s&p500, then you have 15% in cash, and the others I cannot talk that much, as I don't know. But you have around 58% pretty passive ( fairfax and berkshire act as money managing firms). 

I combine something similar with short term opportunities, like arbitrages, or assymetrical bets, like recently biopharmas. May go on margin, up to 15%-20% with this. But I'm trying to build my wealth, if I already had enough or something disproporsionate to my income I would put 33% in berkshire and that way hold enough "cash" to survive a downturn (inspired in the 10% cash rule). But will be nice to hear how people add more Ai to all of this.

Edited May 6 by moatrep

[Eldad]

19 minutes ago, Zemergefen said:

Hi everyone, 

 

I am reaching out for some perspective on value / portfolio construction. I've always considered myself a value investor.

However, year to date my portfolio is down while the S&P is up considerably.

 

My current  portfolio ( Fairfax 33%, CPNG 13%,  Brk 10%, Nu 8%, insurance brokers 8%, MOH 5%, PYPL 5%, Amrz 3% the rest is cash and bonds).

I don't hold any index funds but the opportunity cost of sitting out these broad market moves is becoming hard to ignore. Starting to question if my 100% individual stock approach is the best for me long term.

 

Do you guys use index fund for the core portfolio and pick individual stocks where you have high conviction?  What's your typical split between passive and active? 

 

Appreciate any advice. 

 

How long have you been in the game? I guessing your just getting going or that 33% Fairfax would be up so much you wouldn’t be worried about 4 months. You have a good set of stocks there. I would give it some time. I think value/active is going to make their money buying the bear markets aggressively and being cautious otherwise. I would rather have your stocks than the S&P at this point in time. 

[Zemergefen]

10 minutes ago, Eldad said:

How long have you been in the game? I guessing your just getting going or that 33% Fairfax would be up so much you wouldn’t be worried about 4 months. You have a good set of stocks there. I would give it some time. I think value/active is going to make their money buying the bear markets aggressively and being cautious otherwise. I would rather have your stocks than the S&P at this point in time. 

 

I have been investing actively since 2016 and was lucky enough to discover the COBF community in early 2020.  that was actually when I bought Fairfax stock.  my cost basis is around $450 USD. 

 

 

[Eldad]

10 minutes ago, Zemergefen said:

 

I have been investing actively since 2016 and was lucky enough to discover the COBF community in early 2020.  that was actually when I bought Fairfax stock.  my cost basis is around $450 USD. 

 

 

Oh dang nice job. You have probably beaten or kept up with the market then. Do you enjoy the hunt or is it a burden? 

[frommi]

I can imagine that 1999/200 felt similar for value investors to the current state of the market. Semis are the new dotcom stocks. Tech is now 45% of the S&P 500, Semis 17%, these are crazy numbers to me. Hard to compete with that when semis go up 5% every day.

Edited May 6 by frommi

[Milu]

2 hours ago, Zemergefen said:

Hi everyone, 

 

I am reaching out for some perspective on value / portfolio construction. I've always considered myself a value investor.

However, year to date my portfolio is down while the S&P is up considerably.

 

My current  portfolio ( Fairfax 33%, CPNG 13%,  Brk 10%, Nu 8%, insurance brokers 8%, MOH 5%, PYPL 5%, Amrz 3% the rest is cash and bonds).

I don't hold any index funds but the opportunity cost of sitting out these broad market moves is becoming hard to ignore. Starting to question if my 100% individual stock approach is the best for me long term.

 

Do you guys use index fund for the core portfolio and pick individual stocks where you have high conviction?  What's your typical split between passive and active? 

 

Appreciate any advice. 

 

First thing I’d suggest is to zoom out a bit, comparing year to date results with an index is pointless. What is 5 months of data going to prove. I’d be looking at your 5 year CAGR vs the S and P at a bare minimum to assess performance and even that could be inconclusive as we’ve had some very strong returns on the index this past decade. Main thing is if you enjoy active investing or you’d rather just not have to do it and let the index do the work.

Edited May 6 by Milu

[adventurer]

4 hours ago, Zemergefen said:

Hi everyone, 

 

I am reaching out for some perspective on value / portfolio construction. I've always considered myself a value investor.

However, year to date my portfolio is down while the S&P is up considerably.

 

My current  portfolio ( Fairfax 33%, CPNG 13%,  Brk 10%, Nu 8%, insurance brokers 8%, MOH 5%, PYPL 5%, Amrz 3% the rest is cash and bonds).

I don't hold any index funds but the opportunity cost of sitting out these broad market moves is becoming hard to ignore. Starting to question if my 100% individual stock approach is the best for me long term.

 

Do you guys use index fund for the core portfolio and pick individual stocks where you have high conviction?  What's your typical split between passive and active? 

 

Appreciate any advice. 

 

You have some decent companies there and since you consider yourself to be a value investor it seems to lay in your nature to be a contrarian and to act accordingly. That includes not playing the games others are playing at times. And with Berkshire Hathaway and Fairfax you are investing with the elite of contrarians. Warren Buffets patience for opportunities is pretty much unmatched (dotcom-bubble, now). Do not give in to fomo, especially in times of these valuations that are driving up the S&P 500.  
 

Edited May 6 by adventurer

[coffeecaninvestor]

I think this is very much like the conversation in another thread that you should focus on the increase in intrinsic value and not share price changes especially short term price changes. I agree with you It is definitely tough to see relative underperformance I see intel up double digits and Fairfax getting whacked 7% is massively frustrating but also long term beneficial to long term returns because I can see prem in there buying back shares as a discount. Also I know most investors chancing the hottest stocks on the way up will give back a lot or more of those returns where as Fairfax and BRK will be cushioned by their large bond holdings and take advantage of a down turn. 

[Paarslaars]

6 hours ago, frommi said:

I can imagine that 1999/200 felt similar for value investors to the current state of the market. Semis are the new dotcom stocks. Tech is now 45% of the S&P 500, Semis 17%, these are crazy numbers to me. Hard to compete with that when semis go up 5% every day.

I think we're more in '97/'98, this thing still has some runway. Big difference between dotcom & AI is that a lot of these companies in AI value chain actually have the revenue to back up the valuation.

[73 Reds]

9 hours ago, Zemergefen said:

Hi everyone, 

 

I am reaching out for some perspective on value / portfolio construction. I've always considered myself a value investor.

However, year to date my portfolio is down while the S&P is up considerably.

 

My current  portfolio ( Fairfax 33%, CPNG 13%,  Brk 10%, Nu 8%, insurance brokers 8%, MOH 5%, PYPL 5%, Amrz 3% the rest is cash and bonds).

I don't hold any index funds but the opportunity cost of sitting out these broad market moves is becoming hard to ignore. Starting to question if my 100% individual stock approach is the best for me long term.

 

Do you guys use index fund for the core portfolio and pick individual stocks where you have high conviction?  What's your typical split between passive and active? 

 

Appreciate any advice. 

 

Buy more of the stuff you like at reduced prices.  Or if you think this time is different, figure out why and profit from it.  I don't own index funds but BRK is an acceptable proxy.

[frommi]

44 minutes ago, Paarslaars said:

I think we're more in '97/'98, this thing still has some runway. Big difference between dotcom & AI is that a lot of these companies in AI value chain actually have the revenue to back up the valuation.

Yes because this time the bubble is in earnings not in valuation. Someday this infrastructure buildout will slow or even stop or supply of chips will meet demand. Either way earnings for semis will collapse and with it this whole house of cards. Semis were always cyclical, doubt this time is different.

[dealraker]

My view is the 1990's (leaving out the dot.com bunch) was valuation excess.  Today is business excess, completely unsustainable business development and growth on the cap ex trail.  Cisco, Intel, EMC, and all the rest were never threatened business-wise and they didn't stop growing back then, just hammered valuation wise.  My guess is the downside of this cycle will put some of the major players in the cap ex race on the edge if not the failure box.  And then it will slowly start growing again, but a lot of time later before that happens.  And it does not mean that we are't flying ahead tech wise, that robots are thriving, etc.  It is simply too much at one time...then bust.

 

Wild guess, but business/economic cycles are somewhat predictable (not as to timing though).

 

In the meantime it will be interesting, if this era of suck-in and most investors act as in the past, to see what's used as a source of funds.  I agree with Reds above that it is highly likely you'll get the stuff you want at more reasonable prices - given it will likely be sold to buy what's going up.

 

To me it is the Battle of Bosworth Field, Henry VII vs Richard III.  So many like the Stanley's simply watched...till deciding which side to take...and then it was "ALL IN!"  The more the cap ex leaders run; the faster they run; the more they will be chased.  We all break down to our wild animal instincts at some point.

Edited May 6 by dealraker

[Eldad]

19 minutes ago, dealraker said:

My view is the 1990's (leaving out the dot.com bunch) was valuation excess.  Today is business excess, completely unsustainable business development and growth on the cap ex trail.  Cisco, Intel, EMC, and all the rest were never threatened business-wise and they didn't stop growing back then, just hammered valuation wise.  My guess is the downside of this cycle will put some of the major players in the cap ex race on the edge if not the failure box.  And then it will slowly start growing again, but a lot of time later before that happens.  And it does not mean that we are't flying ahead tech wise, that robots are thriving, etc.  It is simply too much at one time...then bust.

 

Wild guess, but business/economic cycles are somewhat predictable (not as to timing though).

 

In the meantime it will be interesting, if this era of suck-in and most investors act as in the past, to see what's used as a source of funds.  I agree with Reds above that it is highly likely you'll get the stuff you want at more reasonable prices - given it will likely be sold to buy what's going up.

 

To me it is the Battle of Bosworth Field, Henry VII vs Richard III.  So many like the Stanley's simply watched...till deciding which side to take...and then it was "ALL IN!"  The more the cap ex leaders run; the faster they run; the more they will be chased.  We all break down to our wild animal instincts at some point.

You don’t beat the index by trying to beat the index. Do like Charlie M and do nothing a lot more. Read Shakespeare and mountain bike like @dealraker and don’t think about it so much day to day. (I’m also telling myself here) 

[73 Reds]

7 hours ago, frommi said:

I can imagine that 1999/200 felt similar for value investors to the current state of the market. Semis are the new dotcom stocks. Tech is now 45% of the S&P 500, Semis 17%, these are crazy numbers to me. Hard to compete with that when semis go up 5% every day.

One thing some 401k holders and the like might start thinking about since your point about semis and tech as such a high % of the S&P 500 index holds true:  When do folks who have their entire 401k allocated into SPY (my guess is a lot) decide to cut the allocation in order to avoid the inevitable tumble when tech and semis finally reach a top?

[coffeecaninvestor]

2 minutes ago, 73 Reds said:

One thing some 401k holders and the like might start thinking about since your point about semis and tech as such a high % of the S&P 500 index holds true:  When do folks who have their entire 401k allocated into SPY (my guess is a lot) decide to cut the allocation in order to avoid the inevitable tumble when tech and semis finally reach a top?

I’ve literally just did this I was 100% S&P for years, then lowered it to 80% a few years ago, and last week i lowered it down to 30% allocation.

[Gregmal]

Yea idk. I’ve just honestly never even thought like this. I view the index products as a stock, but never been compelled to invest. There’s certain things I want to be a part of, in terms of my investment exposure and that’s typically where I invest. 
 

I also just like, and find intellectually stimulating, owning businesses. If I didn’t have a brain, or a good quality of life,  and was dependent upon external shit(IE I need X for retirement) maybe I’d consider just owning an index 

Edited May 6 by Gregmal

[73 Reds]

1 minute ago, coffeecaninvestor said:

I’ve literally just did this I was 100% S&P for years, then lowered it to 80% a few years ago, and last week i lowered it down to 30% allocation.

My wife and children all have 401ks allocated 100% to SPY and at some point I might change their allocations but also may just leave them as is (they do have other taxable investments in excess of their 401k balances).  Were I close to retirement and in high reliance on a 401k for my retirement, I'd probably cut the allocation in increments as tech/semis become an even higher % of weight and also as valuation rises.

[coffeecaninvestor]

11 minutes ago, Gregmal said:

I also just like, and find intellectually stimulating, owning businesses. If I didn’t have a brain, or a good quality of life,  and was dependent upon external shit(IE I need X for retirement) maybe I’d consider just owning an index 

 

I think a person also make the decision to buy a index, and go about their life doing shit the enjoy, or work on their career, and being productive in the world. It's probably a better outcome in the end as well.  I think the barbell approach makes sense for most people. They start with 100% index funds, and if they like investing and the right opportunity arises, they take a % of those index funds and buy a business, and keep repeating that as opportunities arise. I think it makes a lot of sense to run money this way for the average investor.

 

 

[LC]

I think it depends on age and net worth. 

 

I'm pushing 40 and frankly unless I go on a real-estate buying spree, I hopefully won't need to touch my retirement accounts in my lifetime.

So for me I don't see any need to try and time the market. 

 

If I was 75 and needed those funds? Then I might reallocate and put enough in something more conservative to at least make sure basic needs are all-but-guaranteed. 

[Castanza]

- Focus on your family

- Focus on your health

- Focus on your career

- Have yearly personal finances in order (emergency fund, debt reduction, manageable living expenses)

- Invest (index....just get as much as you can in there as often as you can as early as you can)

- Shift funds to individual stocks as you find opportunities

- Assess time spent on individual stocks / quality of family life / career advancement / other relationships and activities you enjoy

- Make adjustments based on how you feel about time sunk into one vs the other (this can change as you go through seasons of life...nothing wrong with that)

[SharperDingaan]

You might want to consider 'active management' as a once/quarter portfolio review after earnings are published; thereafter, only minor changes depending on whatever your future assessments are. Net of the inevitable price/volatility changes, your existing portfolio is probably going to outperform the index over the next 5-10 yrs.  Active management is not for everyone, and not forever; for most people it's simply smarter to index, and enjoy your life. 

 

One can do very well via active management, but also blow yourself up .... so manage your risk accordingly. We're very aggressive, and do very well, but we definitely aren't everyone 

 

SD

[thepupil]

a few things

 

- the passive equity index is VT (which is 65% US). 100% US allocation is an active decision....one can go further and say 100% equity may not be the truly "passive" portfolio if you take the logic of market cap weighting to its logical conclusion, the global investible asset index is....more stuff...but just saying that I do think there's a case, for passive portfolios to include international....bogle/buffett themselves have said S&P 500 is fine and has sufficient diversification / international exposure, but i think in the end 100% US yhou're still picking US companies to win and that may not always be the case. 

 

- with that said, i think in real time we're seeing diminishing benefits of international diversification as AI is driving both the EM index (TSM / Samsung / Hynix etc) and the US indices. International Developed is a bit more balanced. whole world is large cap tech / AI trade whether its Taiwan Semi or Nvidia or Samsung or ASML. this is said w/o a strong view regarding the durability thereof...i did prefer it when international indices were less tech-y and less hot. 

 

- one of the tough things i have found with passive exposure is that it's more nebulous. we can all read about the historical earnings growth of indices, and have that provide us conviction to hold and continue to buy through volatility, but it's not quite the same as touching and feeling a business. active management provides a highly useful illusion of control. I have found myself wanting to sell my passive investments when certain global things happen (i rarely act on this), but haven't had the same urge with individual stocks bought with a margin of safety. some folks OTOH are the opposite and can keep the faith better in indices.

 

- you should ask yourself which type you are. set up your portfolio in a way that you think will allow you to make rational, long-term decisions. 

 

- the decision need not be binary. i am beneficiary to a small trust. i don't control the cash flows or the investment mandate. it's in a portfolio of ETF's/stocks that more or less makes global index - the advisor's fees. i also have a good bit in 401k's because ahve been at job for a few years now so haven't been able to roll to IRA in a while. the summation of these two things is i have a fair bit in indices of some kind. I can still actively manage the rest of portfolio and have some indices...obviously this dilutes my outperformance/underperformance to index....but...it's fine. I think it's reasonable to put 1/3 or 1/2 or more in passive and add to both portfolios over time and see who wins or rebalance b/w two to hedge your brain/abilities. let's say you're god's gift to investing. if so, the active portfolio will gain more share over time.

 

- passive is incredibly tax efficient, i pay 45% of short term gains to taxes. I presciently bought ALEX the month before it got taken over....cool. after tax, it kind of sucks. if you're high income, live in a blue state, and your assets are more weighted to taxable vs tax advantaged and you don't have ways to potentially offset gains....the case for some passive is strong. I like to actively manage portfolio and stuff as much dough as possible in tax advantaged and now run high gross offsetting indices/other stuff to try to create artificial tax losses, but i think it's really really hard to make case for active management after tax from a pure risk/return perspective....of course if i lived in FL or TN, and had lower income, this changes. you can monetize w/o selling and one's investment style will significantly impact the degree wo thich this matters. 

 

- 

 

 

[thepupil]

i'd also add that ETF's can be super helpful in the case of analysis paralysis. example, in late 2022, i'd done well on relative basis for the parents, because didn't own as much tech....couldn't figure out which company to buy....just bought QQQ...did i know NVDA would lead the AI revolution? hell no. did i think i had owned a fair bit less tech than typical and could use some more. Yes.

 

same with international stocks in 2025 when incremental currency and country diversification seemed good to have and tarriffs had stocks selling off. 

 

 

i think indices are a useful tool for active folks too...i had sold some berkshire in 25 didn't have any place to put it....throw it in some international index...that's like a +40% pretax decision...

 

this isn't meant as some victory lap, but just trying to bring to life simple decisions using passive etf's 

 

 

 

Edited May 6 by thepupil

[DegenerateGambler]

Anything outside of straightforward value investing becomes very very hard to do well very quickly.  If you already own FFH (which is a great compounder given their float), you are more than fine.  I feel if you are looking at the returns of the index this year it's largely driven by the AI mania so you have to know when to get out of that one when it tops.  With FFH you might even be rewarded with gains while the market pulls back or during a bear market.  So I think this year is not a good barometer for how good your allocation actually is.