Strategy and Money Management

The markets have given all a very hard six months. A review of the strategy and money management plan is warranted.

My outlook is for a renewed bull market after this correction in price and time runs its course. The Fed has cut rates and Ben has indicated that more cuts are coming. Their TAF has reduced spreads in overnight lending. "Don't fight the Fed" is a long-standing rule that pays off given time. It takes time for investor fear to work itself out. Unless the Fed betrays Ms. Market, she will be looking quite attractive by fall.

My long term money management plan gives me the flexibility to withstand these wild days. There are two parts to it.

First, the bulk of my investment assets are in the "Krypto Fund". These accounts amount to about 80-85% of my investments today. The "Alpha Fund" accounts comprise the remaining 15-20%, as I have cut the size back from the prior 25% as I posted this fall. Why did I do that ? It was simple risk management. As the dollar value of the Alpha Fund grew, the absolute $ amount of the volatile swings got scary to me. Seeing my accounts "fluctuate" by a personally significant amount was too much. So I cut them back. Remember, I use margin in my Alpha Fund - it's an aggressive fund. Everyone has to set a $ limit of what amount of a "fluctuation" is too much for them.

Now I can be aggressive in my Alpha Fund because the bulk of my investments are managed thru long proven, globally diversified index funds plus real estate funds and gold. So this money is safe and provides really fine, long term returns, viz. over 10% per year on average. If you have a safe base - core holdings of diversified assets - you can be aggressive on your "Alpha Fund". A safe, well-structured investment base is crucial to maintaining a positive mental attitude in your investments. An investment base is like the castle of a Baron. From his safe castle, a Baron can make forays to gain new wealth and lands. If setbacks occur, the Baron can return to the safe base and recover and regroup to fight again. You need this safe castle, too.

If you try to be aggressive with too large an amount of your holdings, the swings and volatility will shake you mentally and financially. So don't do it. This is an absolute $ limit on the amount you can bear under volatile market swings, not a % limit. The absolute $ amounts are what causes fear, not the percentages. An absolute $ limit on your volatility in your "Alpha Fund" will help you control position size in risky stocks. I can keep a very large position in stocks like BAC, but a stock like EDU gets less. Almost all "four letter" stocks have much risk of a blow-up, except the larger, stable ones like GOOG, CSCO, ORCL, etc. So keep the position size in those down.

It's been a tough year so far. Take some deep breaths, collect your thoughts and get ready to ride the bull. A likely starting time is the Fed meeting of late January.