Model Portfolio crees:10STX

The strategy is Don't Lose Money. Whatever I may produce in terms of out-performance, relative to the market, is a pure by-product of how much safety I have built into the portfolio. An investment (and a portfolio) will move in the direction of least resistance; if it can't go down, it will go sideways or up. If I can protect against the downside, the alternatives tend to take care of themselves.

A lot of investors only look up. I spend my time looking down. If I'm forced to jump, I'd rather jump off a footstool than a pie-in-the-sky. One may damage your ankle, the other can kill you. One reason I've done so well at Marketocracy is not because my portfolio has gone up more than most (although it has), but because it's not gone down more than most.

I'm also a big believer in running a concentrated portfolio. Typically, the portfolio holds ten names. This allows me to focus in on my very best ideas. However, when running a concentrated portfolio, you do not have the luxury of investing in losers on the scale of most conventional mutual funds. For a concentrated portfolio, there is a much higher requirement to get it right.

The portfolio is put together like a jigsaw puzzle. Too many people think of an investment portfolio as just a bunch of random stock picks thrown into a basket. A good portfolio doesn't work like that. In a good portfolio, the investments work and fit together. Entry points, allocation, sector, country and currency considerations all play a part. The concept of being a good stock picker, in my opinion, is overstated. The importance of being a good portfolio manager and strategic planner is understated.

In general, the portfolio seeks 'deep value' and 'special situation' investments. This means that sometimes the portfolio invests in unpopular or tainted names that won't make you popular at cocktail parties.

Another item of importance in a concentrated portfolio is the art of transitioning. The portfolio is always in transition. It's always coming from somewhere on its way to somewhere else. And it almost never gets exactly where it's going, or, if it does, it's only 'there' for a very short time. The reason for this is money flow. Money doesn't stay in the same place very long. I don't try to go to where the money is. I try to go where the money will go next. This tends to keep me away from the Kool-Aid and wild parties. It also helps keep me sober and close to a seat when the music stops. The ability to successfully transition a portfolio and stay in front of money movement is an important management tool.

But, that said, I am not perfect. I do, and will, make mistakes. I'm really not a very smart guy. There are still plenty of things I don't know. But I do know my limitations and I do have a pretty simple idea: When I get it right, I like to make money. When I get it wrong, I want my money back.

A global perspective is also important in a successful portfolio. It makes no sense to limit potential investments to one country, or one currency, or one sector. Instead, I seek to find the very best, safest investments I can find, wherever I can find them, and then blend, diversify, fit and balance them together into a high-powered concentrated global portfolio that works.

Posted by Christopher Rees at 7:12 PM | Permalink

In Chris Rees' strategy above he says a critical foundation of his investment strategy is to not lose money. That's one of the reasons we like him and have selected him as one of the mFOLIO Masters. To see one of the ways that he implements this, "not lose money" strategy, see what we've observed and assessed of how he manages his model portfolio's cash position by clicking here.

Posted by Mark Taguchi at 3:00 AM | Permalink