The Half & Half Approach.
If you ever ask people about how they pick stocks, you’ll get a number of various reasons.
If you ask them how you structure a portfolio of stocks, you’ll likely get a blank stare.
If you go and ask a financial advisor at any firm (even the Vampire Squid, Goldman) they’ll give you some esoteric response like:
“We like the 60/40 portfolio” or “We like a balanced portfolio.”
Neither of which mean absolutely anything, and you should always think for yourself - and hopefully this post sparks you to think about this topic.
But let me start with a quick story, to show you, it happens to everyone, even really rich people.
I have a friend who sold a company a few years ago for $40M and he became a JP Morgan Private Bank Member (Yes, there’s another Chase bank where you need liquid $10M).
They put him in a “balanced” portfolio with a “20-year plan” or something.
Diversified in stocks and bonds.
An approach where his “advisor” has no say - mainly because it’s all modeled out by the back-office.
But that approach, it’s dependent on one thing: that Central Banks will stimulate the markets forever and that assets will always rise.
There is ZERO active management.
Zero regard - and why would there be, it’s not THEIR money.
But this is YOUR money and this is mine so we’re going to talk about this…..
I am going to talk to you about Portfolio Management and this simple idea called the “half and half approach”.
Not to tell you HOW to do it but to get you to think about it a little more.
And maybe thinking about it over the Holidays a little might help you come 2024.
Diversification or Conviction?
There are different paths to take here and in my view this all starts with two questions:
How much money are you investing with?
What are your goals with said money?
If you tell me you have $20K then portfolio management is pointless. Just figure out a way to trade that money and build the bankroll. (this will help here)
If you tell me you have $250,000 then we have a conversation starter. (Sorry, I just think that anything less then you should just focus on aggressive growth, not managing it.)
Do you then diversify or take the Bill Ackman approach and pick concentrated positions.
That approach works for him.
He has a lot of assets to manage, and he buys companies, NOT CHARTS - understand that.
It works for him because he is also a money manager, not a trader.
There is a difference there.
Here is my approach.
In my personal accounts (Not the hedge fund, no momentum trading there) - too hard to run size and to keep a nice Sharpe ratio solid (weird, but it matters).
I typically apply the 50/50 approach. - This is it.
On anything less than $250,000 50% of that goes to:
Momentum and Swing Trading Ideas - so $125,000.
The other 50% goes to buying/shorting the actual equity and holding positions for longer than I normally would.
Because, with $125K you can trade high beta momentum, futures and then usind DITM options to trade a thesis.
It doesn’t tie my capital up in one idea that “I have to buy this stock and hold it and follow it, each piece of news and pray that it makes me money this year” - it takes that out of the picture.
You can focus on generating revenue/profits for your portfolio consistently.
Most retail traders don’t do that.
They like to bet heavy on 1/2/3 ideas and hope it works.
That’s silly shit and there’s ZERO reason for it.
The other 50% I like to do this……
Ideas where I don’t have to babysit them or hope that they give me returns.
These ideas are lower beta equities (they don’t move as much with the SPX etc/not correlated), they’re also ideas where is a REAL FUNDAMENTAL TAILWIND backing it.
Yes, that matters, you charts only bros.
The portfolio is split: 50-50.
Active investing + passive.
How This Helps Me.
Personally, it allows me to not get stuck on one idea as I mentioned above.
It takes the approach that I am running a business here, not betting on a lottery ticket (which for whatever reason too many investors have programmed).
Finally, it allows me to get that fix of fast money done while going after really dam good investment ideas that might take time but are worth it.
And the list goes on - In fact, you can get that list in the AST Alerts Membership here.
Or if you want both and want to add the 50% active, come to DeltaOne with us.
But I would urge any of you reading this to sit down and pencil out an approach to manage the portfolio.
Like I said above - it starts with two questions:
What is the amount of money?
What are your goals with that money?
Ask that second question and write it out. Once you can figure that out then this all becomes clearer and you can get off the path of betting on a stock and on the path of managing your money properly.
Hope this gets you thinking…
The LongVol Report is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
This article is presented for informational purposes only, is an opinion, is not intended to recommend any investment, and is not an offer to sell or the solicitation of an offer to purchase an interest in any current or future investments. Any such solicitation of an offer to purchase interest will be made by a definitive private placement memorandum or other offering documents.