Money Management and Asset Allocation

One of my focus areas with setting up my own and other portfolios has been to arrive at that beautiful harmony between asset allocation, returns and life objectives. The fact that most Wealth Management services pay little attention to the relative value in asset allocations and sell off stupid-money concepts like SIPs to the investing public at large is what provides the necessary capital for professional traders and a few hedge funds to make huge returns. There is no basis for investing in something with variance periodically. There is also no basis for failing to book losses when your investment has gone pair shaped.

My own asset allocation at this moment in time is about 10% liquid, 35% debt, 15% gold, 20% equity and 20% trading (money market moving over to Futures and Options). Many of those categroies are currently underemployed. My allocation to equity is currently underemployed: I am less than 5% in equity at the moment, but we are now reaching valuations where I will get involved on a few counters.

The underlying factors bethind my equity allocation is to minimize transaction costs (the 1-2% you pay to fund managers can be cut to .10% if you just do it yourself and really help you out over time); leveraging short-term movements (up or down) to provide a provision for the possibility of a hedge to my portfolio as well as using the benefits of leverage (cushioned by not exceeding reasonable exposure beyond these limits and cushioning my positions with money market funds) and using Gold as a provision for safety in the event of inflationary hell! I bought Gold when it was in the late 600s, though - I would probably limit exposure to Gold to about 7.5% if I was getting involved at early 900s.

I don't try to forecast prices on anything; I allow markets to tell me what I should be doing next. Does the notion of analysts trying to tell the market what the market should do not bother you? It should. Our sacred duty as analysts is to interpret demand/supply equations and market movements into actionable advice. We aren't born prophets; we can see levels of danger and set short-term price targets accordingly, but the notion of setting long-term price targets isn't something I understand. So, most price targets you see on here will be pretty short-term.

I always use a stop-loss. The absence of an effective stop-loss is the first small step on the path of arrogance. Markets don't like arrogance. They also don't like indecisiveness - that's one of the many fine balances that all of us can always work on. For every investment you make; there will be a better investment you didn't make.

I have no annual returns targets, I don't try to build my house around the extraordinary returns I will make through my unlimited wisdom. I do use spreadsheets to figure out how much money I do have, though.

The goal of this blog: to illustrate ways in which market analysis can be used to generate long-term returns. To kick off into more commercial forms of money management over time and to ultimately form a hedge fund that invests in a variety of investment classes and isn't afraid to take short positions on many. Happy reading.