torsdag 7 augusti 2014

This is how I invest

This was originally a comment on Mike Cernovich's blog post about investing like a man, where he asked his readers how they invest their money:


Right now, my holdings look like this:
  • Apartment (no mortgage): 25%
  • Short the Swedish stock market: 35%
  • Gold: 6%
  • Unlisted software: 10%
  • USD: 6%
  • Hedgefunds: 7%
  • Other (fixed income, cash, pensions): 10%
 
This is in no way an ideal portfolio, it just happens to be mine.
This is my way of "parking" my money, waiting for a better time to invest long term because I think there is potentially a very big payoff from timing the entry point. Unfortunately, apart from the turn of 2008/2009 and 2002/2003 there hasn't been any good entry points (and they actually weren't THAT good; the market just happened to rally a lot from there) since the early 1990s.
 
I know 25 years is a very long time to wait for an entry point, but it is still better than living through the hell of the last 20 years just do end up at a ridiculously overvalued point.
In my view there are basically 2 ways of investing in the market:
 
1) Buy and Hold: always buy stocks, a little at a time, never sell, just keep building that portfolio and live off of the dividends. When you get really old you can start planning how to gradually sell the portfolio and hope you die before you're done

2. Buy low, Sell high: Time the market over full cycles (about 10 years). This is not trading, this is investing. You are supposed to find "cheap" entry points for the market and then buy a broad portfolio of stocks that are reasonably valued in the context of the average market. When the market average gets expensive you start selling and when you are done, you wait (or go short if you feel confident enough and the market has become euphoric and crazy enough). What is "cheap"? The best and most reliable measures that do a good job of prediciting future returns are: P/GDP, P/S, profit margin adjusted CAPE. The worst are The Fed model (E/P) and simple P/E ratios.
 
 
In both 1 and 2 I recommend not just buying stocks but constructing a portfolio of stocks, gold and fixed income, e.g.,
  • 1/3 undervalued/underperforming global stocks (overweight geographies that have underperformed and/or are "cheap") 
  • 1/3 gold or platinum and
  • 1/3 fixed income (a mix of short treasury notes, long gov bonds and emerging market corporate bonds).
 
Rebalance to target weights annually, except when the stock market has gone down. After losing years on the stock market, increase the stock weight by some amount. If it goes down 2 or three years in a row, keep increasing the stock market weight on the rebalancing date. After three down years you may end up with rebalancing to 2/3 stocks and 1/6 gold and 1/6 F.I.
Since I am in a waiting mode now, I don't have a mortgage (or any other debt) and my portfolio is quite anomalous, with 36% of my net worth outright short the market and a quite big chunk in unlisted software and other small growth stocks. I also hold gold and USD since I expect a downturn to hurt the Swedish economy disproportionately.

Again, this is not a model portfolio, but it is where my money is right now. Hopefully, over the course of the coming 24 months the non-living space portfolio will change into 100% long of which 65% is stocks (listed/unlisted), 25% corporate bonds and 10% gold

I have a list of stocks, industries and geographies I want to own at some point in the future. I'll publish some or all of it here sooner or later. Right now, however, I don't think it's relevant due to the overbullish, overbought, overvalued markets in general.

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