Much has been written already asset allocation and how it affects 90% of your overall portfolio earnings. I will not attempt to reproduce that.
But I wanted to record my thoughts as I move along in my investment journey.
So here's some thoughts which I have as a two-year investor:
1) Stay in the market long term. More importantly, surround yourself with like minded people and more experienced people. They will provide the steady hand of common sense when all else go crazy.
2) There are many different types of stocks. I like Peter Lynch's categories - the fast growers, the stalwarts, the fallen angels, the turnaround ... Decide on what fits you best and be honest to yourself.
3) "Can you endure a 20% cut in your portfolio?". I find this question to be rather easy to answer without any real consideration. In truth, the real answer may lie in the action of one when a market falls. In other words, I feel that only the person himself can answer to himself on what that answer is. The subsequent adjustment of the stock strategy and risk profile could be one of the more humbling and beneficial experience in an investor's life.
4) My personal preference is to participate in stocks in phases. Buy good and steady growth companies and build from there. Leave the special situations and turnarounds for later. Buffett's mindset rings truer everyday.
5) Over my time as an investor, I have had eccentric flings with a couple of special situation stocks. My learnings tell me that the key question is not about how much to eventually allocate for this area but really the key question would be how you want your portfolio to turn out? Are you willing to go "all in" with a special situation stock when it drops further?
6) Pay the price of participation in the stock market, but start with good companies. There will be good times and bad but if you are buckled up for the long term, you will be fine. There have been quite a few people who spend an enourmous amount of time trying to figure out where the market is heading next. The train passes them by as the long wait eventually forces mistakes. When in doubt, invest (a little)! Pick good stalwarts and be ready to invest more when the chance arrives.
7) Investment is boring. Sit back, watch your stocks like a patient farmer and watch as your crop stumble, fall and eventually grow exponentially.
8) "Swing hard at fat pitches" - think through all scenarios for your portfolio. Think of the worst that can happen, convince yourself that you can solve it, act then let the upside take care of itself.
9) Above all, invest in your mind. It pays to invest a token sum of your portfolio in investment education in order to be a better investor. I subscribe to the Motley Fool for USD 200 per year and it has turned out to be the best ever investment of my journey so far. Be ready to pay well to get quality education. For the money you have at stake, it's the most prudent decision you can make.
10) Oh and have fun!
Overall, I find that most asset allocation strategies focus on percentages and minimizing losses.
But I think it's prudent to provide balance the strategy with intangible factors:
1) Every investor is human and has different characters. In a Singapore style analog, the char koay teow man thrives in the high speed adrenaline rush of aggresive cooking while the hokkien mee man is more measured with delibarate timing and controlled speed.
2) Optimism is the fuel that should drive a person forward. Without positive energy and a cheery outlook, life would be pretty dull. It's a choice of life.
3) "Do you invest to live or live to invest?" - Bill Mann, Senior Analyst (The Motley Fool)
