Before you read this post!
Disclaimer: I'm not a financial adviser and this is NOT a financial advice (might not even be right). So don't consider it as a financial advise for any of your financial decisions.
Important Note: the content of this post is merely a "brain-dump". I'm not an expert in investment value and the idea of this post is for me not to forget what I've learned so far. Specially, after reading a book, it's easy to forget little details so I'm going to keep them here. If for any reason you get something useful out of this post, then great.
Important Note: the content of this post is merely a "brain-dump". I'm not an expert in investment value and the idea of this post is for me not to forget what I've learned so far. Specially, after reading a book, it's easy to forget little details so I'm going to keep them here. If for any reason you get something useful out of this post, then great.
BTW, is this article TL;DR? Just skip the sections between square brackets [ ].
I’m going to be writing a serie of articles to remember what I’ve learned about putting together a conservative investment portfolio.
So far, I'm basing my portfolio configuration mainly in two books: The Intelligent Investor by Benjamin Graham (2003) and Investing Demystified: How to Invest Without Speculation and Sleepless Nights from Lars Kroijer (2013) and some extra knowledge I've acquired so far (blogs, articles, other books, etc.).
[I intend to keep reading about this topic and I'll include more info as I come across interesting stuff. I'll discard magic and other difficult to swallow stuff like 2 or 3 books of aggressive investment I read before and an (luckily very cheap) online course I did.]
If you are an investor everything I’m writing here is going to be extremely obvious - because that's the way it should be -. As mentioned before, this is a simple portfolio which objective is to get the same results as the market. This is a point mentioned several time in Benjamin's book [where I come from, we call people by their first name please don't be offended if you're a fervent follower of Benjamin Graham and you think I'm not being respectful enough]. Lars also bases his investing philosophy in the impossibility for you to beat the markets -or to have an edge-.
[ I strongly agree with this. In danger of over simplifying the argument, let's assume you're trying to beat the market using fundamental or/and technical analysis. As you can read from Graham's book if you want to do a proper fundamental analysis, you need to fully understand the companies' financial statements. At university, I did an accountancy course and one of my tasks was to dig information out of one of these statements and it isn't easy. Actually, it's as obscure as it gets. Pretty much, a very smart guy who knows a lot more than you is trying to make it as obscure as possible for you to understand -it isn't always this way, but it might be and in the most dangerous case will be-. Graham's book shows the same through the chapters related to understanding the company's financial status. That's a no-no for me based on the fact that I'm not putting money based on something I'm not sure I got it right.
What about technical analysis? Well, you'll be competing with algorithms experts which competitive difference is based on the connection cables being straight rather than curved. They have resources you only dream of -computers and data-. So if you feel comfortably confident of being able to be able to write a better multi-thread multi-core algorithm, in a close to the metal programming language and want to put 100k in equipment to run it, go for it!].
In order to be able to put together a portfolio like this, we need to solver a number of issues first.
1) What type of assets we want to buy? For example, bonds vs bonds-based mutual funds -same for shares-. I'll call this the type of instrument.
2) Once the instrument has been defined, what sub-type should you buy? Junk company bonds vs stable country bonds, or a given shares sector vs index trackers, etc.
3) How much of each instrument and sub-type should you buy? 50%-50% bonds-shares and how the market's price affects this decision.
4) How do you buy it? Do you use funds-supermarket and tax efficient wrappers or do you go to scream a price to your local stock market? This is quite an important one. One of the point things I’ve figured it out is that theory clashes very quickly with the practice in this area -specially when you realise you need 100k minimum to buy directly with x company-. Also, there are platform costs and other things to bare in mind.
5) What are the expected results and projections based on different scenarios? What would you like to achieve? 7% annual after or before inflation? How does inflation affects this? I’m going to hit this last point with a number of further articles explaining how I’m putting together a -simple- predictive model. Everything I do here will be located in my Github account so you can access it.
Stay tuned for Part 2.
I’m going to be writing a serie of articles to remember what I’ve learned about putting together a conservative investment portfolio.
So far, I'm basing my portfolio configuration mainly in two books: The Intelligent Investor by Benjamin Graham (2003) and Investing Demystified: How to Invest Without Speculation and Sleepless Nights from Lars Kroijer (2013) and some extra knowledge I've acquired so far (blogs, articles, other books, etc.).
[I intend to keep reading about this topic and I'll include more info as I come across interesting stuff. I'll discard magic and other difficult to swallow stuff like 2 or 3 books of aggressive investment I read before and an (luckily very cheap) online course I did.]
If you are an investor everything I’m writing here is going to be extremely obvious - because that's the way it should be -. As mentioned before, this is a simple portfolio which objective is to get the same results as the market. This is a point mentioned several time in Benjamin's book [where I come from, we call people by their first name please don't be offended if you're a fervent follower of Benjamin Graham and you think I'm not being respectful enough]. Lars also bases his investing philosophy in the impossibility for you to beat the markets -or to have an edge-.
[ I strongly agree with this. In danger of over simplifying the argument, let's assume you're trying to beat the market using fundamental or/and technical analysis. As you can read from Graham's book if you want to do a proper fundamental analysis, you need to fully understand the companies' financial statements. At university, I did an accountancy course and one of my tasks was to dig information out of one of these statements and it isn't easy. Actually, it's as obscure as it gets. Pretty much, a very smart guy who knows a lot more than you is trying to make it as obscure as possible for you to understand -it isn't always this way, but it might be and in the most dangerous case will be-. Graham's book shows the same through the chapters related to understanding the company's financial status. That's a no-no for me based on the fact that I'm not putting money based on something I'm not sure I got it right.
What about technical analysis? Well, you'll be competing with algorithms experts which competitive difference is based on the connection cables being straight rather than curved. They have resources you only dream of -computers and data-. So if you feel comfortably confident of being able to be able to write a better multi-thread multi-core algorithm, in a close to the metal programming language and want to put 100k in equipment to run it, go for it!].
In order to be able to put together a portfolio like this, we need to solver a number of issues first.
1) What type of assets we want to buy? For example, bonds vs bonds-based mutual funds -same for shares-. I'll call this the type of instrument.
2) Once the instrument has been defined, what sub-type should you buy? Junk company bonds vs stable country bonds, or a given shares sector vs index trackers, etc.
3) How much of each instrument and sub-type should you buy? 50%-50% bonds-shares and how the market's price affects this decision.
4) How do you buy it? Do you use funds-supermarket and tax efficient wrappers or do you go to scream a price to your local stock market? This is quite an important one. One of the point things I’ve figured it out is that theory clashes very quickly with the practice in this area -specially when you realise you need 100k minimum to buy directly with x company-. Also, there are platform costs and other things to bare in mind.
5) What are the expected results and projections based on different scenarios? What would you like to achieve? 7% annual after or before inflation? How does inflation affects this? I’m going to hit this last point with a number of further articles explaining how I’m putting together a -simple- predictive model. Everything I do here will be located in my Github account so you can access it.
Stay tuned for Part 2.