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The New Millenium Portfolio A year 2000 project from the John, Mike and Tom of the Wild World of Stocks thread. Subject 31996 The situation is this. A client comes and has the following profile. He/She has 5 million dollars that they want to have in the Stock and Bond Market ( a theoretical figure that Mike suggested) They want to be roughly 60% in equities and 40% in fixed income. It does not pay to talk them out of this asset allocation mix, as they will not entertain thoughts of a secular bear market. The utility that we can provide will come from within this framework. We may move the equity portion up or down 5 or 10% during the year, much as the street firms have their asset allocation models. Of the 60% equities, 23% will be pretty much full invested and stay that way through thick and thin. We may consider stop-losses on some of the stocks in here once a year if we see a severe market downturn Coming. The stocks will be the one decision buy and hold stocks like QCOM, JDSU, CSCO, SDLI, WCOM, PMCS, CNXT, CRA, RNWK, BRCM, RFMD, PCS, VSTR GBLX, QWST, CTXS, ITWO etc We can really entertain many stocks for this. I guess we may dollar cost average into these over 4 months, and then basically hold them. We will have to decide that the fundamental story has changed and that management has lost it and the company and business model is broken to sell these, 22% will be more actively traded, where we buy stocks on breakouts and are looking to hold for a few weeks to a few months, and will use more mechanical stop losses, We can use some of the methodology of one of the great traders in the market Wizards book by Jack Schwager. David Ryan is the Market Wizard I am referring to. (I will provide more details on his methodology as we get our feet wet -g-) 7.5% of the portfolio will go into yield stocks such as reits and stocks like CDC which has a nice dividend and I believe are undervalued. 7.5% of the portfolio will go into value stocks, deeply out of favor stocks that have bombed out such as S, IT when it was at 10. HRC is an excellent current example one stock I would want to initially place in this area. 35 % will go into fixed income bonds, notes, corporate bonds etc. The maturities will be dependent on our view of what rates will be doing in the coming 3 to 6 months. the 7.25% in Reits, I believe is currently offering a risk-adjusted return that will surpass bonds. I am viewing the Reits as a surrogate to bonds currently and so with the 7.5% in Reits our fixed Income will be more like 42.5%. Time will tell if this is a reasonable strategy and if it can outperform. Just have the 7.5% in notes and bonds. the final 3% will be reserved for hedging, where we can once or twice a quarter is we see a serious market decline coming we can use up to a third of the funds to buy some protect with option strategies. This will by no means be an options trading account and will be used sparingly. I plan on putting a fair amount of effort into this, as I am preparing concepts for clients that by no means are identical, but this is kind of a synthesis of the specific needs of many folks. This should be an exciting project, I am hoping we will all learn quite a bit and become more Proficient in fashioning these types of strategic frameworks. My hope is to enhance our confidence in having a proactive Approach in Asset allocation modeling and portfolio development and maintenance. John | ||||||||||||
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