Traditional Index with Select Stocks Mix Best

Physician's Money Digest, October 2005, Volume 12, Issue 14

Wall

Street Journal

The chance of outperforming the marketwith a few smart selections always seemsmore appealing than sticking with mundaneindex funds. According to a article, however, severalstock watchers who comb through equitiesfor winners are advocating a broad-basedinvesting strategy in the current market.One stock strategist points to the dispersionrate (ie, average difference in performance)of the S&P 500's componentstocks as a key indicator. Wide dispersionstranslate into a greater chance ofselecting good individual stocksover others. However, when theaverage dispersion is low, the oddsgrow slimmer as stocks' growth runsparallel. Many advisors are focusingon sector-based investing, keepingportfolios as unspecific as possible.Naturally, physician-investors' portfolioswill vary based on goals and risk tolerance,but for the most part, advisors say tosteer middle-of-the-road, building around atraditional S&P 500 index and then addinga mild dose of individual stock picks.