Invest Within Parameters
Instead of offering cogent stock advice this evening, I will outline a time tested strategy that will insure market diversification and trading discipline, with regards to adding to or reducing positions.
Before you sit down and screen for ideas, understand what the 8 principal sectors of the market and what percentage of your money should be invested in them. If you are one of those guys who refuses to invest in “banks” or “oils” due to immediate adverse market conditions, you are missing the point. Being diversified is about participating in today’s hottest stocks and biggest losers. Unless you are a Godly market timer, being diversified is the way to go, mainly because it will offer dumb fuckers peace and prosperity (wholly dependent on the quality of the stock picks of course).
At any rate, let me offer an example of sector diversification, before your heads explode from confusion.
Basic Materials: 15%
Consumer Goods: 10%
Financial: 10%
Healthcare: 10%
Industrial Goods: 15%
Service: 10%
Technology: 15%
Utilities: 5%
Cash: 10%
Okay, now that the weighting have been established (hopefully after careful consideration), it’s time to select stocks. If your bullshit account at E-trade is low 6 figs, you should keep the number of stocks per group under 3. So, essentially, this means you will select a maximum of 16 stocks, and no less than 8. In an effort to avoid getting into a philosophical debate over: “what’s worse, rape or bad stocks?” I will select 16 random names, irrespective of quality.
Basic Materials: Endeavour International Corporation [[END]] , TETRA Technologies, Inc. [[TTI]]
Consumer Goods: Green Mountain Coffee Roasters Inc. [[GMCR]] , Skechers USA, Inc. [[SKX]]
Financial: Goldman Sachs Group, Inc. [[GS]] , KKR Financial Holdings LLC [[KFN]]
Healthcare: Wyeth [[WYE]] , Perrigo Company [[PRGO]]
Industrial Goods: Raytheon Company [[RTN]] , Gafisa SA (ADR) [[GFA]]
Services: The Finish Line, Inc. [[FINL]] , Bally Technologies Inc. [[BYI]]
Technology: Intersil Corporation [[ISIL]] , Texas Instruments Incorporated [[TXN]]
Utilities: Enersis S.A. (ADR) [[ENI]] , ONEOK, Inc. [[OKE]]
Okay, now you are officially diversified, at least amongst equities. Most of you should have some fixed income exposure. However, that would send many of you to an early sleep; so I’ll keep it straight gangster, 100% equities.
Once you’ve committed to this strategy, it’s important to stick with it. This means: avoid cashing in on winners abruptly, and sticking with losers—despite the insatiable desire to cut them loose and move on. Don’t get me wrong, if something materially changes in a name, you need to sell it and move the funds into a better name. However, if a stock is going down, only due to market weakness, real men buy said names on dips and build up positions, instead of blowing them out. When I used to adhere to the program, I’d review my weightings on a quarterly basis. Let’s say GMCR and SKX shot to the moon, sending my Consumer Goods exposure to 20%, I would force myself to sell off enough of GMCR or SKX, in order to get the weighting back in line, around 10%. On the other hand, if GS and KFN tanked, sending my financial weighting down to 5%, I’d force myself to buy more GS or KFN, to get the weighting back to 10%. The key to this strategy is having good weightings and stellar stocks picks. Unfortunately, many of you will fall short, in a most atrocious manner, attempting to invest like Le Fly.
Finally, there will be times when the market is not worth investing in, bringing the topic of cash reserves to the forefront. Generally speaking, one should have at least 5-10% of cash on hand, in order to buy severe dips or participate in short term trading opportunities. However, every once in awhile, like in 2008, the market is simply “too gay to buy”. Your cash reserves can be used to short sell stocks or invest in levered ETF’s (providing you are into asshole products of course). Or, you can simply bulk up on cash, just to reduce beta during market declines, in an attempt to time peaks and valleys.
Either way you slice it, investing is an art, not a science. There are thousands of ways to skin a cat; this is just one of them.
Very nice Fly – Happy New Year – break a leg tomorrow
Big props on the shout out, thank you.
Jesus, you sound like Jim Cramer now. BOOOOOOOOOOOOOOOOOOOOOOOOORING
and you sound like a thirteen year old girl who has to spell like thiiiiiiiiiiiiiis to get her point across
ZING!
I hate being that guy, and I know this will open a can of worms amongst wordsmiths across this great country, but I pretty sure you want to ‘ensure’ market diversification and ‘insure’ against calamity.
Shut up woman get on my horse.
No, I meant insure.
Go fuck yourself
I get a similar response from my wife when I point out the vacuum would look better in the living room if it were properly situated with the wand attached to the back of the unit (we have a Miele) instead of being left with the handle on the floor. Something about missing the point that the floors are clean.
You let her keep the vacuum in the living room?
You need to understand that a Miele is a piece of furniture, not just a vacuum
If you cannot appreciate posts like this you are either an immense piker, with very little skin in the game or an abject moron, destined to blow up in a bad way.
Long live Etrade, their direct access system rocks.
Why review things only quarterly? Assuming that you’ve got a target price for each stock you pick, why wouldn’t you sell it when it reaches that target (even if it happens a week after you bought it), then redeploy the funds as appropriate? It seems to me that the way markets move these days, if someone’s going to own specific stocks (rather than just index funds), that person should be reviewing his positions DAILY, just in case something he owns makes a massive move in either direction.
Mark
this is an old strategy, most suitable for people who need parameters. Over the years, Ive been able to trade without them, which is an entirely separate topic
Understood, but for “those people” (the ones who “need parameters” and will only be reviewing their positions quarterly), perhaps it would make more sense for them to use (and reweight on a quarterly basis) sector ETFs… Just a thought.
Not really. Generally, you want to build around core ideas. There is nothing wrong with accumulating good stocks over an extended period of time. One qt is not this immensly long duration, as you seem to believe.
On a less trivial note, the idea of investing with money management dictating your decisions instead of some technical indicator is quite brilliant, actually.
While I don’t like this strategy personally, I acknowledge that it makes sense and can be very profitable for some.
Excellent stuff, thanks!
“If your bullshit account at E-trade is low 6 figs”
What if its low 5 figures?
Great Post Fly, Thank you for educating us lowbie investors trying to be more like you, but only the few will ever achieve such levels. None will ever be at your level of course.
FIG
Thanks Fly,
Much appreciated!
Thanks for the strategy ….
If a core holding in one of your sectors is flat or under performing and another stock in the same sector becomes a good value, would you cut one for the other, trim current positions to accommodate the new opportunity or use cash to add the new stock with intent on re-balancing upon qtrly review?
That depends on the situation and personal discretion.
I think he answered that. if it is flat or underperfoming for a bad reason; cut it loose; if for market reasons add to rebalance. It’s all about: why
Cant wait to see you puckers jumpin out da winders
Fly,
Are the sector percentages that you used generally the percentages that should be used or were those percentages just examples?
Also, if the percentages in your hypothetical port are arbitrary, is their a method of determining appropriate sector allocation?
Thanks
The general idea is based around s&p 500 weightings. The above allocation is in the ballpark of what I deem acceptable. However, at the moment, I’ve gone rogue, trading outside traditional parameters. When I get back into the matrix, I will abide by the above rules, once again.
Who says I’m not bullish?
Two Bulls for 2010.
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^A really good starting point, clearly explained^
ok, I’m showing my laziness – someone said the average man will do almost anything to avoid thinking
eg If one were to invest half their money in a foreign company in USdollars and the other half in same company but in that company’s foreign currency, how are the returns affected when the value of the USD vs that foreign currency fluctuate?
1) Company stock ^, USD ^
2) Company stock ^, USD down
No doubt you’ve thought of this (but it’s too lengthy/complicated/proprietary to explain): Looking at all of the stocks that appreciated more than 90% last year, could or how could the PPT be tweaked to flag them?
I created a foriegn index in the ppt that lists all of my favorite names. Also, there are many ways to screen for the best performing foreign stocks in the ppt.
As someone up several 100% last year trading BGU and BGU calls, all I can say is… WTF?
Impression of Fly before this post:
http://www.youtube.com/watch?v=yLkIB5l-OlM
Impression of Fly after this post:
http://www.youtube.com/watch?v=ZNjkl0hX2Nc&feature=related
Come on man! Where I live $500k-$2M houses are undergoing bidding wars, the builders can’t build them fast enough. They are building spec homes with weekend crews, and selling them the same day the foundation is being poured. My business doubled both its gross and profit in 2009 compared with 2006 and 2007, both of which were great years. Bernanke needed to raise rates months ago, but of course we have midterm elections this fall, so forget about that.
You. Are. Hurting. My. Brain.
Please bring back the salami-throwing mustache-punching Fly. Please tell me this imposter had just hijacked your account for a weekend.
Bring back the K-cup!
Shut up you fucking imbecile. It’s a sunday night and I do these posts every so often to remind people not to rape themselves, not that anything is wrong or illegal about rape, as per Danny.
Most of you are too coked up to appreciate proper asset allocation. Just ignore this post and before you know it, I’ll be throwing salami again.
Truest thing I will ever say: Fly, the lawyers are your biotch, not the other way around. And other guy, I’m in Texas, and this probably isn’t the right forum to talk about amounts.
haha that’s not quite what I said
slim, good for you.
Do you live in the US?
Doubled from what level?
Fly said this was for the masses; not what he does
That dude is the one guy pissed off about the lack of champagne-party posts on this blog.
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Champagne parties were all the rage on New Years eve, especially in Dallas.
Champagne parties are the rage EVERY evening in Dallas, not just New Years.
Dallas is gayer than a three legged statue of Liberace.
Treu, but its propensity for harboring long-legged bombshelletes is somewhat mitigatory.
That and the lack of competition as described above.
___________
You only wish you had a third leg like me. It becomes a hindrance right now as my lady friend pours me another glass of bubbly. But enough about me. Undoubtedly, you live in some Hooverville like Florida….
Talking lack of competition. Lord freaking women are ruthless .. the most ruthless of the species in most ways. Read about this.
http://www.nypost.com/p/news/international/fat_chance_dating_on_this_site_YP2N54Goz0IwrLgE6Q2CFL
In an effort to avoid getting into a philosophical debate over: “what’s worse, rape or bad stocks?”
Holy shit, you never miss a trick. lofl.
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the last time I threadjacked Fly’s comments it was good for +50 commengs as well. And it was GW who brought up the whole rape situation. But yeah, that had me laughing.
Spelled Wyeth wrong, it’s PFE. If you got it from the PPT, you should remove it.
Actually kinda sad, they were a great employer in suburban Philadelphia with a beautiful facility. I interned there back in the day. They told a bunch of the staff to fuck off and will probably sell the building and land.
Beginning of a new year & decade. What you did last year means nothing, people. Time to prove yourself all over again. Let’s get it!
TOLD YA!!
http://ibankcoin.com/henry_fool/2010/01/01/my-take-on-fridays-close/
COP
SQM
TSTR
WNR
FUQI
HBAN
CBST
XOM
SD
for the freakin’ win!
Get In The Freezer!
I say we end the day in the Red……No Doubt TC is shorting the SMH
Go ahead and get those shorts working, then.
Actually, just watching for now. May be ripe for PM short but doing nothing now.
Thought about it when I saw TXN spin around for awhile but held off because AMAT and INTC were just too strong- these three about 60% of SMH.
Glad I did nothing because TXN caught some bids.
Also watching NSM as weak but not a big component of SMH.
Homies really sucking wind though. WFC,AXP coud drag down XLF if there is a down draft.
Good luck to all in 2010.
Hey Caddy, I was being sarcastic when I said to go ahead and short.
Something you might appreciate, though: This morning I was invited to go to The Greenbrier, in WV, to check out the facility, new casino, and golf course. There’s a FedEx Cup event taking place there in July of this year. I’m a supplier to them, BTW.
Never been there but I hear Sam Sneads place in W.VA. is first class.
Didn’t know they added a casino.
Opening this spring. Classy joint.
For the record, I was chastised for loving refiners last week/two weeks ago.
Check out WNR, TSO, etc.