Buying
the GTI
I
am often asked how one might go about investing
in the GTI, or at
least in the companies behind
it. Are there, for example, mutual
funds that
specialize in these stocks?
There are no funds that I know of, though there are
stockbrokers and
money managers who specialize
in them. Gilder
Publishing will be glad to tell you
who they are and how to reach them.
The alternative is to build and manage your own
private fund. Through online trading,
with its
convenience, low commissions and odd-lot
capability, even quite limited
assets can create a
broad portfolio nowadays.
But weekly rebalancing? Forget about it. As I've
said on
many occasions, it's not practical for an
individual investor. The
transaction costs are
too high.
Then along comes an outfit called FOLIO.fn,
and
I
have to eat my
words. They seem
to have created
an investment product that makes rebalancing
quick and easy, while at the same time avoiding
high
transaction costs.
(Since writing this, I've learned that another
company, called BUYandHOLD,
is also a possible
source for this kind of portfolio creation and
maintenance. I haven't looked into it myself, but
from what others
have told me, it's a definite
possibility.)
For $295 per year, FOLIOfn will let you create
three "folios" of
up to 50 stocks each. (How
convenient: one for each of my
indexes.) You can
then trade within each folio without limit and without
additional cost, as long as you stay within their two
daily
trading "windows", and provided your stocks
are on their list of some
3,500 approved "window
stocks". There is a charge of $14.95 per trade for
companies not
on the list (the GTI and DPI each
have two companies that didn't make the list).
When you establish a folio, you specify its initial
investment
proportions, such as equal dollars in
each company, or an allocation in proportion to
market capitalization, or any other weights you
might want. At any time
thereafter you can
rebalance to your original proportions with a
single
command, or you can change your
proportions to something else.
So you could, in fact, pretty much duplicate all three
of my indexes, and
all within your annual fee of $295
(except for the handful of non-window
stocks).
I'm
not saying that you should duplicate my indexes,
only that you could.
Whatever you do, you have to
take into account your personal situation
and
investment beliefs, as well as your individual needs
and goals. What's right
for one
investor may not be
right for another.
As far as rebalancing is concerned, there are a
number of issues to be
considered, among them
the following:
1. Frequency. Is it good investment strategy to
rebalance
regularly, or should you let your winners
ride (and your losers die in
peace)?
2. Taxes. Unless your account is nontaxable,
rebalancing may
result in capital gains taxes.
FOLIOfn is set up to help you deal
with this
problem. For example, you can limit rebalancing
to new
money only, so you're not actually selling
anything. Or you can sell only to the extent that
you're able to offset gains with losses.
FOLIOfn
will do either of these automatically for you
according to your specification. Moreover, in
selling they will
always choose the shares with
the highest basis, if that is your instruction.
3. Other transaction costs. Whenever
you buy or
sell a stock at the market price, you're always on
the wrong side of the bid-asked
spread.
If you
rebalance frequently, that's an added cost that can
be
significant. Again, FOLIOfn may be able to help
you with
this. To the extent that your trade is
matched by another customer's, the two trades are
accomplished in house at a price between the
bid
and asked prices.
Mitigation of the bid-asked spread would be a
trading advantage even if
you never rebalanced.
At this point, as I look back at what I've written, I
fear it must sound
to the reader as if I'm trying to
sell you on FOLIOfn. I assure
you I am not, and if
you decide to do business with them, you're on
your
own. My only interest is to make you aware
of a product that might be useful to you.
I have no financial interest in FOLIOfn whatsoever,
though I may one of
these days open an account
with them myself. And from what I've
seen so far,
I wouldn't mind getting in on their IPO some day.
I
like the looks of their business plan.