I usually don't offer any advice unless asked for. I am careful about the fact that much free advice is just that, and pretty useless. Sometimes I use the word you in my posts, but generally, it denotes more of I or we than you. Much of this blogpost is a collection of my thought process, and how I like to conduct myself rather than telling others about what to do. If I have not succeeded in conveying that it is probably a shortcoming, which I hope to correct in the coming times. In short, I really don't care what others do, just as I know that others don't care what I do. It is like as someone said: don't tell your problems to others because the half don't care and the rest are happy that you have them. Such is the world. It is better to be the master of your fate and captain of your soul, yourself. Be the Invictus.
Here's how I set up my investment portfolio. Needless to say it again, yet, I don't care what others do for themselves. I have a three-layered structure.
The first one consists of high quality stocks bought at reasonable prices compared to their sustainable long term competitive advantages. I buy them for keeps irrespective of their current prices, top or low. The intention is to be a part owner of those businesses and enjoy the ride with them. The expectation is to earn decent compounding returns over a long period of time. The portfolio consists of 5-10 stocks. I don't believe in extreme diversification. Obviously, there isn't much of thrill or fun in this, as it should be. When I seek it, I go to my third portfolio. And obviously, a large portion of my cash is allocated here.
The second one is about investing for not very long. The stocks that I buy are meant for any time from a year or two. The cap is three years. There are plenty of stocks that will be available at prices that are considered to be a bargain, and are likely to yield more than market returns in a short period of time. This is to take advantage of market's folly and profit from it. Although there is no limit to the number of stocks that I buy, usually I restrict to less than 10 stocks. The number is more likely to be 5 than 10. These are not meant for long term, and therefore are not necessarily of high quality stocks. Nevertheless, because by nature I am more conservative, I tend to pick only those stocks which are not low quality businesses. I also avoid those which have disproportionate debts. There are some sectors that I avoid no matter how attractive the prices look to me. A year is a long term and a three-year period is a very long term for the most in the market, and this itself offers opportunities to me to earn reasonable returns over the period. Research for this keeps me busy and excited. Because of the number of stocks that represent this portfolio, there aren't much of buys and sells, only just enough of them to align with the objective.
The third portfolio is more of fun and excitement. This involves buying stocks meant to sell them in less than a year. It is not possible to do this all the time, but mostly the cap is a year. The sells can happen in a few days to a few months. A few months is an apt period for this activity. Needless to say, I am not a day trader. I don't look at charts, etc. because I find them boring. The idea here is to make money when the markets are volatile. The idea is to have some fun and games as the markets unfold by the day. Usually I get to pay my bills through this, although nothing is guaranteed. No free lunches all the time, remember. And obviously, a very small portion of my stash is allocated to this.
Frankly, I have too much of leisure. Despite running a three-pronged portfolio, the amount of transactions that I do is very limited. There aren't buys or sells for days together. There aren't meaningful buys for months together. I value businesses that I never mean to buy for instance, just for fun. It gives me an idea as to how businesses should not be run. The leisure time is meant for anything: reading up on the businesses (research), business books, story books, or going out, or spending the day in praise of idleness, or anything for that matter. Dealing with greed, fear, and envy in a manner that should be has been very helpful for me in having fun.
I find markets exciting is an understatement. I consider myself a student of business, finance, and markets. An earnest student of this exciting game. I am also aware that much of the investment success, or even life's success is attributed to some luck, without which we render ourselves to be both arrogant and useless. Some humility is good.
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