The media and financial industry talk about “asset allocation” all the time. They focus on defining it in a way that gives it precious little meaning. What’s worse, is they offer virtually no guidance in how to build or maintain your asset allocation.
In this report, I lay out the basic premise around the two general asset allocation models that I use with investors. Both are derived from the ideas of Benjamin Graham’s book “The Intelligent Investor.” Although many people today do not know who Graham is, his most famous pupil and employee is well known indeed, none other than Warren Buffett.
I also discuss my “Core 4” investing methodology. This approach analyzes how secular trends (top down), government and central bank policy, valuation (bottom up) and price trends impact potential investments. Finding companies and industries that check 3 or ideally 4 of the boxes give us the best chance to win.
In the following outline I share my general thoughts on asset allocation and how you can organize your thoughts around investing. A slow handed ebb and flow approach that revolves around risk management and finding undervalued assets moving or poised to move favorably is at the heart of this approach that you can use for a lifetime.
Before you get started though, you must determine what type of investor you are – an Intelligent Investor or an Enterprising Investor. Being honest with yourself is vital to success. Many people do not have the risk tolerance they think they do once a bull market is over. A lot of people become complacent or over confident during bull markets – like the one from 2009 to 2017 – and are not prepared for the inevitable bear market. Don’t be one of “those people.”
Update: Here’s an interview I gave a day after posting: