Effective Portfolio Management begins with Discipline 
Effective Portfolio Management begins with Discipline 

Effective Portfolio Management begins with Discipline 

portfolio management

Manage your money effectively, or it will manage you destructively. Sol Palha

Without A Portfolio Management Strategy, losses are guaranteed 

 Decide how much money you are willing to Gamble in the markets (invest or trade are just softer words that hide the true meaning of what you are doing. In short, everyone is just simply gambling. The stock market is one colossal giant casino). 85%-90% of investors lose their money, and this must happen for the remaining 10-15% to make a killing. For every dollar won, someone has to lose a dollar; hence if you win 5 dollars, someone had to lose 5 dollars, or five people had to each lose a dollar.

 Break the money into long-term and short-term investment portfolios. In each portfolio, you should always maintain some cash for those mouth-watering opportunities that come along now and then.

 Decide how much you want to make in advance in both portfolios and stick to these figures. Do not keep changing or altering the numbers.

 

Decide how much you are willing to lose.

Note that these suggestions should be customised later to suit one’s trading needs.

For example, 10,20, 25%, etc.  For long-term plays, I suggest you set a mental 25 to 30% stop, depending on your risk tolerance. Some investors are happy with using larger stops. and one of the reasons for this is that they usually don’t commit all their funds to a given position in one shot. They deploy them in lots.

When your stop is hit, exit, never widen your stops and get out as soon as they are hit.

If the play is not working out, i.e. not doing anything for months, this is dead money. You have to make a decision to stay in or sell and buy something else. If you have plenty of cash, then you can sit it out, but if your funds are limited, you might be better off investing in another play.

 Set Realistic Goals

Learn basic TA; we have a web page that covers many aspects of trading, plus provides valuable lessons on technical analysis and information on sentiment indicators.

 Keep at it, and don’t just give up. Investing is a skill, and it can only get better with time; you must be willing to put in the necessary effort. Don’t ever follow the crowds or what is popular; if it’s too popular, it usually means the end is near.

Random Thoughts on Portfolio Management

Hope for the best but prepare for the worst

As a class, investors have a peculiar habit of extrapolating recent events into the future. When times are good, they become overly optimistic about the prospects of their enterprises. As Graham pointed out in his landmark investment treatise, The Intelligent Investor, the chief risk is not overpaying for excellent businesses but rather paying too much for mediocre businesses during generally prosperous times.

To avoid this sorry situation, it is vital that you are on the side of caution, especially in the area of estimating future growth rates when valuing a business to determine the potential return. Second: Only purchase assets trading near (in the case of excellent businesses) or substantially below (in the case of other businesses) your conservative estimate of intrinsic value

Once you’ve conservatively estimated the intrinsic value of a stock or private business, such as a car wash held through a limited liability company, you should ensure you get a fair deal. How much you are willing to pay depends on various factors, but that price will determine your rate of return. Full Story

Portfolio management involves selecting and managing an investment policy

A policy that minimizes risk and maximizes return on investments. There is an art, and science, when it comes to making decisions about investment mix and policy, matching investments to objectives, asset allocation and balancing risk against performance.

There are many complexities in portfolio management, so many Americans turn to expert financial advisors to help them navigate the tricky waters of investing and the financial marketplace. Read below to educate yourself on the basics of portfolio management services.

There is always a risk when investing, and that risk comes down to the marketplace being either:

  • Not in your favour – The marketplace is unpredictable, and when this sometimes yields financial loss.
  • In your favour – When the economy is doing well, or your particular investments are in stock/businesses thriving, which yields a return on investments

Find your Solution, don’t imitate others.

There are also many considerations per individual and household, which is why portfolio managers need to provide customized investment solutions to clients based on each client’s unique needs and requirements. For example, someone who is in his or her 20s will have a completely different investment portfolio plan than someone who is planning to retire in ten years as variables such as time, inflation and risk need to be measured differently for each person’s situation. Full Story

Another Perspective on Portfolio Management

We all dream of beating the market and being super-investors and spend an inordinate amount of time and resources in this endeavour. Consequently, we are easy prey for the magic bullets and the secret formulae offered by eager salespeople pushing their wares.

In spite of our best efforts, most of us fail in our attempts to be more than average investors. Nonetheless, we keep trying, hoping that we can be more like the investing legends – another Warren Buffett or Peter Lynch. We read the words written by and about successful investors, hoping to find in them the key to their stock-picking abilities so that we can replicate them and become wealthy quickly.

Focus on what works for you & do not follow the masses

We are whipsawed by contradictions and anomalies. In one corner of the investment, Townsquare stands one advisor, yelling to us to buy businesses with solid cash flows and liquid assets because that’s what worked for Buffett. Then, another investment expert cautions us that this approach worked only in the old world and that we have to bet on companies with solid growth prospects in the new world of technology.

In yet another corner stands a silver-tongued salesperson with vivid charts and presents you with evidence of his capacity to get you in and out of markets at precisely the correct times. It is not surprising that facing this cacophony of claims and counterclaims; we end up more confused than ever.

Having no strategy leads to losses.

In this introduction, we present the argument that to be successful with any investment strategy, you have to begin with an investment philosophy that is consistent at its core and matches not only the markets you choose to invest in but also your individual characteristics. In other words, the key to success in investing may lie not in knowing what makes Peter Lynch successful but in finding out more about yourself.

Investment Philosophy

The investment philosophy is a coherent way of thinking about markets, how they work (and sometimes do not) and the types of mistakes that you believe consistently underlie investor behaviour. Why do we need to make assumptions about investor mistakes? As we will argue, most investment strategies are designed to take advantage of errors some or all investors make in pricing stocks. Those mistakes themselves are driven by far more basic assumptions about human behaviour. To provide an illustration, the rational or irrational tendency of human beings to join crowds can result in price momentum – stocks that have gone up the most in the recent past are more likely to go up in the near future. Let us consider, therefore, the ingredients of an investment philosophy. Full Story

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