Portfolio Management

Portfolio Management

Rule Number One. Keep your investing money separate from the money you need to live on. There is an old racetrack saying, ‘Scared money never wins’ and it is the truth. In other words don’t bet the rent money on the horses or the stocks.

There is a lot of talk about asset allocation in the financial world. I largely ignore it. If you are a passive index investor it does have some merit but if you are a stock picker like me you don’t need it. This world is filled with two types of people, 95 percent of them want take your power away from you (the church, the medical world, the financial world, the media, and probably the government as well) and there is maybe 5 percent who want to empower you. Generally they will not sound like everybody else and tend to go their own way. I say this to warn you about the financial industry. There is just so much bad advice going on out there. Look at it this way, you go to a party and say pleased to meet you while at the same time you’re thinking what an asshole. You say one thing outwardly but are thinking something different inwardly. This applies to all of us as individuals but more importantly it applies to all the so called organizations of the world (governments, financial institutions, medical establishment, the church). They all say one thing but are thinking something else. Think about how the big Banks all talk about the great service they provide you with while they hit you with hidden service charges. So take what the financial world tells you with a grain of salt. End of paragraph.

Take your investing money and separate it into two piles. One pile will be to buy stocks with while they other will be in cash. If you’re a conservative careful investor you might want to have 50 percent in cash and 50 percent in stocks. If you are more aggressive it might be 10 percent in cash and 90 percent in stocks. The Current Market Environment discussed a few posts ago will guide you in this area. And forget Bonds. They are not setup for the small retail investor. Just my opinion of course, if the markets are looking rocky you may want to hide out in a bond ETF for awhile, it’s up to you. Let experience be your guide as it has been for me.

Another thing is to spread your risk. You do not want to put all your money into three stocks. You need to diversify your holdings but you don’t want to over diversify either. I would say you should own at least 10 stocks preferably more to be properly diversified. And you would want them in different industry groups as well. I personally hold 22 stocks in the financial services, industrial, tech, energy, commercial real estate, infrastructure, healthcare, manufacturing and food exporters areas etc…and each industry group will have sub groups within them. I also own several Master Limited Partnerships. It all comes back to spreading your risk because random events can occur disrupting your portfolio so you have to have it structured so you won’t be shaken out of your holdings.

I have most of my money in what I feel are my best ideas so my portfolio does not have an equal amount invested in each position. When you start off you probably don’t want to do this but as I have said before let experience be your guide. As you gain more experience you may want to weight some of your holdings heavier than others.

And lastly all of my investments are in Canada as I find Canada to be a fairly inefficient market. Some will tell you, you have to be invested globally but as many of my companies do much of their business abroad I already have global exposure. I guess that’s it. If I’ve forgotten anything I will talk about it in future posts. The first 5 posts I’ve done pretty much encapsulate my approach to the markets so far but I am still learning.

This is my 5^th post in two days after starting this blog yesterday. I have looked upon what I have done and it is not bad but I am tired and will rest even though this isn’t the seventh day.