Most pikers dream of buying the next [[MSFT]] or [[POT]], before anyone else, hit it big— then retire rich on an island, spending most of their days drinking queer pina coladas.
The reality is: most small investors, who gamble in the market, will be eliminated from the game. Wiped out. These are the people who “trade” from one momentum stock to the next, without rhyme or reason, often using leverage or options to “juice the returns.”
They’re just looking to make it fucking big.
Once again, this practice is asinine. If I were President, I’d arrest these people and force them to work in coal mines, or wash the windows of skyscrapers.
Everyone has their own asset allocation strategy. Some people believe having 200% of their dollars in POT, [[MON]], [[COP]] and [[AUY]] is diversification. Tragically, those people will fall victim to the “black lung” disease, under a Fly administration.
Just know, there are 10 principal sectors in the S&P 500, the benchmark for all investor performance.
Here are the sectors, broken down by weighting:
1. Financials: 17%
2. Technology: 16%
3. Energy: 14%
4. Industrials: 13%
5. Healthcare: 12%
6. Consumer Staples: 9%
7. Consumer Discretionary: 7%
8. Materials: 5%
9. Utilities: 4%
10. Telco: 3%
Now, if you only want to abide by the weighting of the S&P, go ahead. It’s not a bad weighting and will ensure proper diversification. However, when selecting the stocks, make sure to avoid overweighting speculative crap.
For example: Let’s say you have 100k to invest. Using recent S&P data, 14k will go into energy stocks. But, use your fucking head. Do not put the whole 14k in some bullshit ethanol play. Go mainstream with the bulk of it, think [[XOM]], [[COP]] or [[SLB]]. Then, with a smaller piece, buy speculation. Typically, I buy 3 stocks per group.
So, within energy, I might have 5k in [[COP]], 5k in [[CVX]] and 4k in [[NGS]], or some other spec play. In the event my NGS position blows the fuck up, losing 50% in one day, my losses will be minimized to a mere 2% of the entire portfolio. Hence, the reason why diversification is so important.
Also, when putting together the portfolio, be sure to properly identify companies and the sectors they belong in.
For example: [[FCX]] is a material stock and [[FWLT]] is an industrial. This is basic shit.
Personally, under normal market conditions, I’d deviate away from the standard S&P 500 weighting. Right now, my model weighting is the following:
1. Financials: 5%
2. Technology: 15%
3. Energy: 15%
4. Industrials: 15%
5. Healthcare: 10%
6. Consumer Staples: 10%
7. Consumer Discretionary: 7%
8. Materials: 10%
9. Utilities: 5%
10. Telco: 3%
11. Cash: 5%
However, because of what I deem to be “unusual market conditions,” I have suspended this allocation and have hedged with a multitude of inverse ETF’s and short positions—as you already know.
With experience, you can move away from a strict allocation and try to “scalp” gains, especially in a fast market. Nonetheless, for most novice investors, keeping a strict allocation is the way to go.
With regards to knowing when to sell:
I comb through my positions, once per quarter and make adjustments.
For example: With 100k invested, I have 15k wrapped up in tech. Of the 15k, 5k is in [[RIMM]]. Let’s say, over the past quarter, RIMM‘s stock price doubled, while my other tech positions were flat, bringing my tech weighting up to roughly 20%.
Under most circumstances, I will sell some RIMM, in order to bring my tech weighting back down to 15%. Or, I may elect to sell some of my other tech stocks. Either way, the weighting is coming down to 15%.
Conversely, if RIMM got cut in half, I may double my position, in order to bring my tech weighting up to 15%.
Essentially, the system is designed to help you lighten up on runaway sectors, in a measured way. And, it will prompt you to buy some of the weak ones (sectors), when warranted.
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