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Strategies & Market Trends : Portfolio Protection + Money Management for the Long Term -- Ignore unavailable to you. Want to Upgrade?

To: BDR who wrote (45)	4/17/2000 5:02:00 AM
From: Dale Baker	Respond to of 57

FWIW, here is another contribution the discussion: tigerinvestor.com

To: BDR who wrote (45)	4/19/2000 11:11:00 AM
From: John Stichnoth	Read Replies (2) \| Respond to of 57

Defining Investment Goals--an Alternate Take. Most of the posters around SI seem focused on making as much money as they can, as fast as they can. Some seem to consider this a competition. I propose that maximizing wealth shouldn't (necessarily) be the goal. An alternate goal: Maximizing the probability that on a date certain you will have an amount certain--enough that you can be confident of being able to enjoy a long retirement comfortably. For instance, a reasonable goal might be to increase wealth from $1 MM to $10 MM in 10 years. That's pretty aggressive (26% per year), but doable. I want to make certain that in a few years, when my kids are grown, neither my wife nor I will have to work. Until the kids are grown, we want to teach the lesson that it is important for grownups to work, so we're not retiring anyway. That goal will lead to much different behavior with your investments. Among things we've done are (1) Continued to maintain a much higher portion of cash and bonds than most. I've been actively investing for three years, always in a bull market. I've not taken any money out of the market, but the bulk of our new money has gone into bonds rather than stocks. This has cost me some money, but this market has been extraordinary. I have reduced my risk at some opportunity cost. But, I have kept lots of powder dry. With luck, I will be able to retire with that powder still dry. But, if a crash occurs this decade (and last week's activity wasn't a crash), I will be able to be an aggressive buyer while others are on the sidelines. (2) Maintained an almost-tax-neutral portfolio. Last year, in the face of a 100%+ paper return, I incurred less than a 2% realized gain, taxed at short term rates, and no net long term tax liability incurred. (3) Avoided the use of options. I believe they are cost-intensive instruments for my goals and approach. (4) Kept some diversity in my stocks. Not as much as the brokers would have us keep, but more than LindyBill. I began overweighted in telecomm infrastructure. I have kept the bulk of my non-tech stocks. Non-tech is now a much smaller portion than it used to be of my total stocks, but that is because of techs' growth. And, I am increasingly convinced that brick and mortar stocks will be able to succeed in the New Paradigm. Not all of them of course, but the good ones. (5) Try to construct a portfolio that will weather a downturn such as last week's. That means being underweighted somewhat in some of the most interesting opportunities--those companies that are still losing money as they ramp up revenues and operations. (6) Avoid "bad" companies. Avoid "mistakes". I learned that in my first year doing this actively, when my successes were offset by companies that disappointed. (Aside--This is part of the attractiveness of Gorilla Gaming). (7) Focus on relative performance. 80% of stock performance in the short term is controlled by the market, anyway. Remember that paper wealth before the "date certain" is pretty irrelevant. And watching the day to day gyrations, such as last week's can drive you crazy (and maybe cause bailing at exactly the wrong time). Just some thoughts. A focus on options as the sole source of risk management might be too narrow. Best, John

To: BDR who wrote (45)	4/20/2000 7:57:00 AM
From: Tom Trader	Read Replies (2) \| Respond to of 57

FWIW, I used the rally of the the last two days to liquidate a portion -about 30%- of my taxable portfolio. I did this with two objectives: First, there were some holdings that did not meet the profile of the type of stocks that I should own for the long haul; this is the effect of some of the gg strategy rubbing off on me:) The net effect of doing this was to realize some losses. Second, I sold of a small portion of certain holdings that I am not averse to owning -- but where I had significant positions and some decent profits; the net effect is that there is a taxable gain though, not a large one, since it is offset by losses in the first category. I replaced these with longer term calls in the stocks that I sold -- generally "at the money" strikes. In the event that the market/stocks keep heading up my gains will be decreased to the extent of the call premiums. However, part of the rationale for doing this is that I believe that we will head down again over the next month -- probably starting next week -- and I will be in a position to acquire stocks at a lower price. A judgement call -- and essentially market timing. This decision is to some extent linked to the move back into stocks in my retirement accounts which after being all cash are now almost 90% invested. As I posted on the g&k thread, I had been phasing back into stocks in my retirement accounts and was fortunate to be able to enter at some quite attractive prices. To the extent that I miss the boat -- on the positions that I liquidated in the past two days -- and we take off I believe that the stocks that I now own should do very well. The calls that I am long should also offer upside in the event of a continued rally. If, however, we head down again -- as I believe will occur -- I am in a position to add to my portfolio at attractive prices. If we do decline -- and I am able to buy stocks at more attractive prices -- I will then exit the calls that I went long this week or utilize other strategies to offset the cost of the calls. Not sure if all this is clear -- it is obviously based on several assumptions and judgement calls.