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General Investing

October 8th, 2008 at 06:18 am

I thought I would blog a little about by investments and how I invest in general. So be forewarned.

Generally speaking, 85% of my portfolio is diversified as the experts say. I have a mix of large, small, and mid size companies. I have a mix of domestic, foreign, and emerging market. I have a mix of asset types bonds, stocks, money market. I have a mix od index funds and actively managed funds

I rebalance my allocations once a year in the first quarter. This in essence rebalances my risk. If emerging markets has a great year, my portfolio may be taking on bigger risks because a greater percentage is allocated to emerging markets then I initially thought should be. The other thing is that the market goes in cycles and by rebalancing, you are selling you winners to buy out of favor assets. In the longer term, rebalancing and dollar cost averaging outperform just dollar cost averaging.

What about the other 15%?

Well 10% of the 15% is allocated towards sector funds and is a little more speculative. These are funds that I think the pendulum has swung too far. In this case, I am investing in REITs and financials/banking.

The remaining 5% is more short term trading I do. I go long stocks, short stocks, and play in the option market. I have developed some quantitative models that narrow down the stocks that I research. Then I use technical analysis and fundamental analysis to determine when to make the trade and what to finally trade. So after everything is done I usually end up with a watch list of 10 stocks that I'll follow for months before trading.

One example is GS where I have been playing the volatility. I keep tight stops on this and so I don't lose much money. In general, I usually set up my day trades for the late afternoon. I try to determine what the day traders are doing and do the opposite. In other words, if I feel the day traders are short, I'll buy the stock around 1:30 or 2:00 and end the position before the market closes.

I have been following NCC trying to figure it out. I have been filling out an excel sheet detailing when I would trade it and if it would be a profitable trade. I am still not ready to trade it and may never trade it.

But let's go back to my sector funds. How do I determine whether to get into to what when?

Well I first start looking at the major indices. I try to start determining support. I had support of the Dow at 10,750 then I had it at 10,000. Now? I am still trying to figure it out. What I am looking for is the indices to find support and hold it. What this means to me is that the big players are done selling.

I also look at the VIX, which talks about fear on the street or volatility in the option market. Usually high volatility signals tops and bottoms. So, I am looking to see if the VIX starts to retrace (go down).

Now I start looking at my industry charts and I start looking at sector funds and ETFs. In the REITs, I am in a sector mutual fund. I bought ETFs for banking and financial services.

Basically, split my buys into 3 baskets. I start with a 25% investments and then a 50% investment and then another 25% investment. So let's say I am going to invest 10,000 in banking ETFs. My first invest would be 2,500 then 5,000 and then 2,500.

This year I did my initial investment of 25% in banking and financial ETFs in March. I have been waiting to put in by second allocation. I will wait until the VIX retreats and the sectors start rebounding before the second investment.

This is an over simplification, but it is a general overview of the large things I look at around investments. Also, I small percentage of my portfolio is in trading/speculative investments. And only 5% is in single names.

2 Responses to “General Investing”

  1. Broken Arrow Says:

    Heheh, riding on the backs of shorters eh? That's actually a nice little trick.

    Thanks for sharing this. Very interesting indeed.

  2. scfr Says:

    Thanks for this post. While guys like you and BA tend to write more about your individual stock trades (because they are interesting), it's good to see the big picture and be reminded that actually make up a very small, and reasonable, portion of your portfolio.

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