On my crusade to show a little more effort in reviewing my investments, I decided to do some analysis premptively, state my objectives, and commit myself in writing to my decisions. A golden opportunity came my way, as I recently decided to build a portfolio I didn't have to watch every day like my daily trading one. I trade for fun, not just profit.
Principal: $50,000
Timeline: 5 years
Risk Tolerance: Medium Low
Strategy: Mainly catching long-term cyclical uptrends, with diversified padding.
Here's my plan… …
Stock Picks Breakdown:
- BNS – Bank of Nova Scotia, solid in a moderate growth Canada, entrenched in a Latin America at the brink of change. Fidel needs to die, I heartlessly say. I expect a latin credit boom.
- BRK-B – Berkshire runs rock solid insurance business and uses capital for investments. Looks bullish on the U.S., but in reality has diversified under our feet across the world. If the Oracle dies, I believe the company will continue to do well, as he's left dedicated disciples. That would be a buying op.
- PHO – Water, the next oil. PHO gives me safe, broad exposure over the industry without needing to understand it well (see Powershares approach). Good portion of non-large-cap exposure as well.
- DVY – Income for cheap (decent expense ratio). Broader than some mutual funds too.
- PTH – Healthcare is on the rise as baby boomers retire. I wanted some exposure in the next generation of healthcare start-ups too, not just stagnant blue chips. PTH does that for me.
- UTX – Sector cycle begins anew as orders for airplanes in rising countries join the big boys. Being the main supplier of elevators to China helps too, from here to the Olympics.
- VTR – A risky play, this REIT focuses on healthcare-related real estate (i.e. retirement homes, care centers, etc.). While real estate is shaky, hopefully their geographically diversified holdings will hold-up as people enter retirement.
- Y – Similar to Berkshire, Alleghany has a value-oriented investment approach and solid insurance business. Their track record has been flawless, returning 14% annually for the last 25 years.
- Cash – What you don't see in the portfolio above that makes up the difference for a total of $50,000 is cash. The remaining amount is kept in a savings account at 5.05% interest.
Portfolio Stengths:
– Solid companies.
– Upturn in the cycle for health care, water, and avionics/aerospace.
– Balanced risk averaging between consistent performers and a couple fair value dogs.
– Appears heavily domestic, but in fact is prepped for international performance. These are companies that operate in North America, but can serve a global market.
Portfolio Weaknesses:
– Significant amounts in volatile areas, like real-estate and healthcare, which can meet trends that pull down the best companies.
– Growth will depend most instrumentally on a falling dollar.
Thus far:
So far (and I've only been about a month into it) I am pleased. I bought during the liquidity-guilty Shanghai bust. Since then, the two losers, VTX and Y, have been below their 50-day Moving Average anyways, and I accepted VTX to be risky and volatile. My hope is that I do not have to intervene much in the next 5-years as I let this portfolio go. I feel that my only mistake thus far has been to buy too quickly, and not dollar-averaging a little bit to soothe the VTX losses.
Most importantly, I wanted to test myself. I wanted to make long-term decisions to stick with, and leave the gaming to my other trading portfolio. How this portfolio does will teach me, above all, asset allocation, and risk indentification. With these tools, I hope to be a better investor in the future, and a more patient one at that as I wait anxiously for these five years to pass.
Lovely just what I was searching for.Thanks to the author for taking his clock time on this one.