Dorfman Value Investments, LLC
Chairman, Investment Advisor
John Dorfman is a hands-on money manager with over four decades of financial industry experience. He has managed a mutual fund, a hedge fund, and more than 100 individual accounts, and has also been a financial writer for many years.
Dorfman Value Investments is an investment management firm in Newton, Massachusetts, dedicated to seeking strong investment returns for their clients' through value investing.They specialize in finding small to mid-cap opportunities among unpopular stocks in the United States and abroad. Clients rely on the company for their expertise, open communication style, and track record of solid performance results. John and the team take a very hands-on approach to stock selection and to building customized portfolios for each client.
John has shared his stock market insights as a senior special writer for The Wall Street Journal, executive editor of Consumer Reports, and a columnist for Bloomberg. His syndicated column appears weekly in the Omaha World Herald,Pittsburgh Tribune Review, Virginian Pilot and the web site Guru Focus.
BA, English Literature, Princeton University
To be adequately diversified, a portfolio usually should include at least 10 industries. There's nothing wrong with investing in two companies within the same industry, but I recommend against it if it causes your portfolio to be non-diversified. I'm a big believer that the industry and sector weights of a portfolio can be -- and often should be -- very different from the industry weights in the index you are trying to beat, most often the S&P 500. The best method, I believe, is to pick stocks "bottom up" on their fundamental merits and then to let the industry weights fall where they may, within reason.
In my opinion, common stocks are the best vehicle for someone who wants to make their money grow significantly over a 10-year period. Over the 30 years through May 31, 2017 US stocks (as measured by the Standard & Poor's 500 Index) have returns 9.72% per year. Over the past ten years the average return has been 7.24%. This is far better than you would get in the bank, or from bonds. As your question rightly implies, the higher return reflects higher risk. But Americans of every generation have been hard working and innovative. I personally see no reason why the coming decades should differ greatly from the past three decades in terms of total returns from stocks. Yes, there are real problems out there, including terrorism, political strife, the probability of rising interest rates, and the fact that US stocks are not currently cheap. But there are always problems -- think back to Vietnam, the Cuban missile crisis, the AIDS crisis, and the World Trade Center bombing, among many others. Despite these problems, the stock market has provided solid returns to people willing to bear the risk.
It's never necessary but often wise. Lately, index investing is all the rage. The S&P 500 has done well, rising for eight consecutive calendar years. (It appears this will be the ninth.) At such times, it's very appealing to invest in an index fund, matching the good performance of the S&P at very low cost. However, the years when financial advisors often prove their mettle are the times when the market melts down, such as 2000, 2001, 2002 and 2008. Losing less in a downturn may seem like merely something nice, but it's actually more important than that. Consider two advisors, Joe Offense and Johnny Defense. Joe Offense makes 20% in year one, another 20% in year two, and loses 15% in year three. Johnny Defense makes 15% in year one, 15% in year two, and loses 5% in year three. Who creates more value for clients? It's Johnny Defense, with a a 25.6% total return for the three years, as against 22.4% for Joe Offense. There are many permutations, and many styles of investing that can be successful. But giving ground grudingly in a bear market is certainly an important attribute for a manager.
A standard traditional answer is to begin investing in the stock market when you have:
(a) six months' savings
(b) adequate insurance (car and health insurance, plus life insurance if and only if you have dependents).
I think this remains a reasonable answer, though a venerable one.
Good luck at Wharton, it's a terrific school.