Diary of a Financier

My investing rules

In Trading Desk on Tue 21 Jan 2014 at 17:30

Every journalist and blogger loves doing top 10 lists, especially those pertaining to finance. I thought I’d put together a short list of my own, incorporating a few, fundamental road rules for portfolio managers–a guide that I can continually revisit and refine…

  1. Bullish optimism is my default setting– Optimism prevails 90% of the time (bull markets), so focus more on the big picture and don’t even worry about avoiding those little corrections along the way. Allocation management can make a significant contribution to outperformance over a market cycle, but remember that high levels of cash only need to be raised once every 4-7 years.
  2. Only worry about what I can control– By definition, nobody sees black swans (unknown unknowns) coming; in reacting to grey swans (known unknowns) my management of my own psychology and my recognition of the psychology of crowds can have marginal impact that’s necessary for a steward of families’ wealth to monitor. These are the signals and processes for use in monitoring:
    • Only 6 broad market fundamental & technical factors matter:
      1. Earnings
      2. Valuation
      3. Trend
      4. Sentiment
      5. Credit
      6. Inflation
    • Determine what’s “priced-in” by deriving the market’s implied, probability-weighted expected value of outcomes
    • Remember Rule #1 (Bullish optimism as default setting)
  3. Only invest in singlenames when they have significant relative & absolute value with a margin of safety– My default allocation gains core exposure via ETFs (beta); opportunistic, individual names can provide marginal outperformance (alpha) when purchased at a significant discount to their underlying value–cheap enough “to allow for human error, bad luck, or extreme volatility in a complex, unpredictable, and rapidly changing world.”

–Romeo

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  1. […] guided by that self-awareness and my own investing rules, that’s why I’m merely focused on bringing our portfolio back down to benchmark-weight […]

  2. […] with this data, I have to issue a “mea culpa” on a guiding principal of mine, formerly, “bullish optimism is my default setting because we’re in a bull […]

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