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

To: John Stichnoth who wrote (48)	4/20/2000 11:08:00 AM
From: Tom Trader	Respond to of 57

An excellent post, John -- and one that would be worthwhile for others to read. I use an approach which is not dissimilar to yours: the portion of my portfolio that is capable of being valued is approximately 30% in bonds/bond equivalents, 40% in stocks, 5% in futures accounts and 25% in cash. I also have positions in three private companies -- I invested in these as start-ups over the past 7 years. I am leaving this out of the valuations for obvious reasons. I will not reduce my cash position to less than 15% -- at that level, I can cover most contingencies including being able to withstand a significant market decline of some duration without having to be concerned about core stock holdings. Given that I have achieved a certain level of financial independence, it makes no sense to me to take risks with my portfolio that are likely to jeopardize this situation. Assuming that the 40%, which is, for the most part, in high growth stocks --which could go as high as 50%, if I shift more cash into stocks-- does anywhere near as well as such stocks have fared over the past decade, I will have more money than I know what to do with. So it is a question of expectations and establishing reasonable goals. I do agree with you that forums like SI which can be so valuable in sharing information and insights can also be a negative in terms of the competitive element that it can spawn as well as in causing people to develop unreasonable expectations. It never ceases to amaze me at the size of positions that some people claim to have in certain stocks which I also own; either they have a whole lot more money than I do, they are exaggerating about what they say they own or else their concepts of risk management are very different than my own.

To: John Stichnoth who wrote (48)	4/20/2000 5:20:00 PM
From: BDR	Respond to of 57

Thank you for your wonderful contribution. Definitely a worthwhile read and I appreciate the points you made. My reasons for starting this thread have to do with a change in approach on my part to investing. In the past, and even now, we have lived off of my earnings. My portfolio performance was something of an abstraction as ups and downs had little material effect on our lives. However, recently I have begun to feel that our investments may have to be our main source of support in the not too distant future. Hence my shift in focus from just maximizing gains (perhaps the competitive factor you referred to) to preservation of capital. With regard to options, I agree that they are a high cost form of risk management. I am yet to find an option market with sufficient liquidity to produce narrow spreads. Add to that the relatively high commissions and options are not that attractive. The cost kept me from taking that approach to protection a few weeks ago, though in retrospect recent drops have been some of the few times that the magnitude of the drops would have justified the expense. Since these events cannot be predicted with any degree of certainty, I will stay away from puts as a form of portfolio insurance. The other aspects of portfolio management that you mention to minimize risk seem more appropriate.