1. Diversification and Persistence: Implications for Personal Asset Management Dale Domian, Professor of Finance School of Administrative Studies York University

2. Consider 60/40 mix Traditional allocation for a balanced portfolio is 60% equity, 40% debt Some investors may consider individual stocks for the 60%, and bond mutual funds (or ETFs) for the 40%

3. How many stocks are enough? Many finance textbooks and popular publications claim that the full benefits of diversification can be obtained with just eight to 20 stocks. Evans and Archer, Journal of Finance, 1968

4. Burlington Northern Santa Fe Warren Buffett’s offer: $100 per share My cost basis: about $3.00 Over long holding periods, some stocks deliver spectacular gains…while others go bankrupt!

5. Two possible approaches Large positions in a small number of stocks; if you’re lucky, you will have at least one big winner Small positions in a large number of stocks; guarantees that you will have some of the biggest winners

8. Domian, Louton, and Racine, Diversification in Portfolios of Individual Stocks: 100 Stocks Are Not Enough, The Financial Review, November 2007

10. Extensions for future research Leverage Rebalancing Small Stocks

11. Leverage Several previous articles on this topic: Domian and Racine, Financial Services Review, 2002 Domian and Racine, Canadian Investment Review, 2003 Domian and Racine, International Review of Economics and Finance, 2006 Domian, Racine, and Wilson, Journal of Economics and Finance, 2006 Extend Financial Review approach using leverage

12. Rebalancing and Small Stocks See Tables IV and V from 2006 AFS presentation

15. Fixed Income Mutual Funds How do you choose a good fund? Persistence – do winners repeat?

16. Money Market Funds Domian and Reichenstein, Financial Services Review, 1997 Tables 2 and 4, next slides

19. Municipal Bond Funds Domian and Reichenstein, Journal of Investing, 2002 Exhibits 1 and 4, next slides

22. Corporate Bond Funds Reichenstein, Journal of Investing, 1999 Domian and Reichenstein, research in progress: persistence over longer time horizons

23. How do high-yield bonds (“junk bonds”) fit into the 60/40? Domian and Reichenstein, Journal of Fixed Income, 2008 High-yield bonds act like a combination of 2/3 investment grade bonds, 1/6 large stocks, and 1/6 small stocks