Model Portfolio mkoza:TGF

The news coming out of CCME is disturbing. Although I have become somewhat toughened as a result of my experiences in the market and am comfortable taking large losses on occasion to achieve a superior long-term return, I am very unhappy with this situation.

The news: CCME has just reported that Deloitte uncovered irregularities with respect to confirmations of the bank accounts in CCME's subsidiaries. Dorothy Dong, the director representing major investor CV Starr on the Board, has resigned, in light of the CEO's apparent unwillingness to respond to this issue. As a result of these revelations, there is a substantial likelihood of significant fraud within the company, and I currently plan to sell my holdings of the stock unless the proper cash amounts are confirmed prior to the reopening of trading. Please bear in mind that the situation is still fluid, and my views can change at any time based upon new information.

I am just amazed that Starr, Global Hunter and Deloitte (until now) all missed these problems, especially given the amount of prior due diligence that they must have conducted.

A note on diversification: I would never recommend that anyone put much more than 10% of their stock portfolio into any one stock. In my Marketocracy portfolio, I started out with a high single-digit (percentage) position in CCME in early January 2010, and only increased to low teens after the revelations of the Starr investment and DD. This position did balloon to high teens when the stock peaked, but such a concentration should not be taken as recommended allocation. In fact, when asked on a recent webinar whether I would be adding to my CCME holdings at the current depressed price (similar to the current price), I stated that I had plenty enough already (low teens percentage of Marketocracy portfolio) and that there were a number of equally undervalued stocks available in the market, although many of these had much less vetting than CCME.