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Motley Fool Rule Breaker Portfolio.

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Motley Fool
Rule Breaker Portfolio.


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This article was posted on June 1, 1999.

Effective Diversification Calculation
Motley Fool Rule Maker
No. Security Current
Value
(V)
Relative
Value
(R)
Beta
(V x R)^2 Comments
1 VMMXX $23,000 0.2300 0.05 0.00013 Vanguard Money Market Fund
2 AOL $30,200 0.3020 1.75 0.279312 America On-Line
3 AMZN $18,400 0.1840 2.34 0.185382 Amazon.com
4 ATHM $7,000 0.0700 2.13 0.022231 @Home
5 EBAY $5,800 0.0580 2.50 0.021025 E-Bay
6 AMGN $3,800 0.0380 1.05 0.001592 Amgen
7 IOM $1,000 0.0100 1.75 0.000306 Iomega
8 SBUX $1,900 0.0190 1.25 0.000564 Starbucks
9 GT $2,000 0.0200 1.15 0.000529 Goodyear
10 CAT $1,900 0.0190 1.15 0.000477 Caterpillar
11 DD $2,000 0.0200 1.00 0.000400 DuPont
12 CHV $2,000 0.0200 0.67 0.000180 Chevron
13 TDFX $1,000 0.0100 1.75 0.000306 3Dfx
- Total $100,000 1.0000 - 0.51244 = Sum(V x R)^2

Effective Diversification, D = 1/(SUM (V x R)^2) = 1/(0.51244) = 2.0

Non-market Risk = 1/(SQRT (D)) = 1/(SQRT 2.0) = 71.58%

100% Safe Withdrawal Rate = 1.17%

95% Safe Withdrawal Rate = 1.47%

90% Safe Withdrawal Rate = 1.60%

Note (1): Safe withdrawal rates based on 40 year pay out period.

Note (2): The $77,000 stock portfolio is composed of the Motley Fool Rule Breaker stocks in thier approximate percentage of portfolio on May 12, 1999.


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Copyright 1999 John P. Greaney, All rights reserved.

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