The "Stock Trading Riches" Investment System

[ls7550]

Tom runs his portfolio like an equity warehouse.

A different but somewhat similar approach might be to consider your investments as stacking the shelves of an isolated towns general store that you own. Ideally you want to have a range of goods to cover all eventualities. Umbrella's for rainy periods (or intense heat), sun cream and shorts, lip-salve and heavy coats ... etc.

10% gold will be called upon during times of extreme economic bad times. When 10% gold might double and double again and double yet again in value - maybe more.

10% long dated TIPS for periods of high inflation, low nominal yields.

10% long dated conventional treasury bonds.

10% cash (5 year treasury ladder perhaps, so some bonds maturing each and every year).

With that as the '40% bond' allocation, for 60% stocks you might opt for perhaps BRK, Small Cap Value and XOM/Energy providers/partners.

Since 1972 such a portfolio would have trashed the Coffee House (more general 60-40 stock/bond portfolio). Something like a 14% annualised compared to 10.4% for the Coffee-House portfolio.

Yearly real % gains (after inflation of (for 1972 to 2012 respectively)

9.46
-4.50
-19.47
13.67
37.24
8.71
4.66
28.86
12.96
-3.10
17.05
25.12
4.20
31.25
18.22
0.96
18.50
20.57
-10.85
19.69
11.05
16.48
1.38
25.62
7.18
17.60
13.92
-3.29
10.72
2.91
-1.09
15.78
9.70
3.09
16.32
10.61
-12.33
3.68
14.26
4.30
7.89

i.e. a reasonably productive/rewarding general store - that had goods on the shelves support both the greedy and the scared in the time of their need. Whilst there were the odd modestly bad year (or two), generally adjacent years either preceding or subsequent to those bad years compensated for those bad years.