When it comes to investing I believe in a few things, you might call them rules, I would call them guidelines. When you say rules, that implies a lack of flexibility. I want to be flexible because things can change so much that having rigid rules will get you in trouble. Instead I operate by a general philosophy that the one constant we can rely on is change. I also have the philosophy that taking profits and always having a healthy cash position is simply smart. So, I fashion my rules so that they are consistent with that philosophy.
Okay, so here’s the deal…I published a guide called The Big Idea – Portfolio Framework. This framework is designed to create long term generational wealth and be resilient, actually anti fragile, to any economic downturn, no matter how severe. It’s the big picture that describes five major sector strategies to concentrate on. Within each of the five there are investments and there are speculative plays and there is cash. So, I’m going to break that down into how I would partition these within the sectors.
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- Investments 50%
- Speculative plays 25%
- Cash 25%
These are not hard and fast numbers, they are guidelines. The cash position could grow to 75% under certain circumstances, but in general I like to have enough cash so that I can put on new trades. I would consider this allocation my fully loaded up position. I probably don’t want to have less than 25% cash, but it’s there just in case opportunity rises.
The exceptions to this allocation might be in the Gold portion of the Portfolio Framework. I’m literally saying that’s all physical Gold. One could argue to have a portion in Silver as well, and I could go along with that. Maybe 80% gold and 20% Silver. See how flexibility works?
Now let’s dig a little deeper into the Investments versus the Speculative plays. You don’t want any one investment to dominate your total portfolio, so I would do the following and put limits on any position as follows:
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- An Investment should never take up more than 10% of your total portfolio.
- A Speculative Play should never take up more than 5% of your total portfolio.
Again, these are guidelines. They will keep you out of trouble by limiting your exposure, and thus limit your risk.
SPECIAL CONSIDERATIONS
When I wrote this we were in the middle of the Coronavirus Pandemic. The entire country, and practically the entire world, is in shutdown mode. In this case I use a very defensive posture and went almost entirely cast, with the exception of the Gold and Long Volatility. Of course I took profit on the volatility, so there’s very little position left. remember that the Long Volatility is all about insurance, and you always have to have some insurance, and sometimes you have a claim where you collect your benefit, like in this pandemic.
Everything else is in cash. And this is when I also have another milestone, this is when I started this Asymmetric Advisor service. Right at the beginning of the pandemic, actually it started before I knew there was going to be a pandemic, but what timing, heh?
I am in the position now, with a huge cash position, where we can wait this generational economic situation to play out and decide how to deploy the cash in a way that’s consistent with the long-term portfolio and take advantage of potentially incredible opportunities.
Can’t get more exciting than that!
