Basic Strategies for Portfolio Management

Basic Strategies for Portfolio Management

I will be the first to admit that I still have a LOT to learn regarding the stock market. I officially started way back around 2007-2008, coinciding with the financial crises and housing market crash of that same era. So, I consider myself lucky to have started at that time, and the U.S. Stock Market started possibly the longest bull market in history.

Having said what I said above, and despite my years of trading and investing in stocks (roughly 17 years), I don’t have an economics degree or an MBA, and I was one of those retail investors who just learned things the hard way, by buying stocks, failing here and there, and learning along the way.

Getting My Feet Wet

So, how did I get into the stock market?

Basically, I loaned someone money so they could make a down payment on a house. And they later paid my wife and I back with stocks in her husband’s computer company. To make a long story short, this was one of the best things to happen to my wife and me. And we started off with 268 shares of Intuitive Surgical, a robotics company that specializes in medical robots that can perform non-invasive surgeries.

And the stock grew slowly and it grew some more, and we were able to use some of the shares to pay for our sons’ college tuitions. But, we made sure to diversify that one stock in to 5, then let our portfolio grow from there.

Making Mistakes Along the Way

After all these years, I’ve made some mistakes along the way. For starters, my wife and I invested in commercial real estate, but we lost a substantial amount of money, and I wish this was a REIT that you could invest in, in the stock market, because then I could just get out quickly… but this hard lesson in life taught us that any investment can go sour, and there is nothing you can do about it.

This all led me to doing a LOT of online research on my own regarding risk management, risk tolerance, diversfying one’s portfolio to reduce the chance of huge losses and to ensure that the portfolio gains over time.

I’ve never been one to dabble in options trading… way too risky, but that wasn’t my mindset. I think that a trader/investor has to know one’s own mind enough that you will make sound decisions, not turn the stock market into a gambling casino, and learn from one’s own mistakes… and I believe every trader/investors has loss money but the good ones who persevere will learn from their mistakes, and take a loss as a lesson learned. If you continue to make the same mistakes over and over again, you might as well wrap it up and do something else.

No Regrets, No Anxiety, No Pressure

I’ve been meditating and practicing Yoga for years. I believe that this has helped me to remain calm and collected when having to make decisions. And I can see how trading/investing in the stock market can cause lots of anxiety, if you are setting unrealistic goals and putting yourself in that sort of stress and pressure.

Start slowly, read a lot of good stock market books. Patience is a virtue, resilience is a good trait. And you continue to learn until you can almost feel that you are very intuitive when it comes to making decisions, but it’s not really pure intuition as it is a collection of various experience and knowledge acquired over X amount of years.

Being Frugal and Learning to Live Within Your Means

Look at Warren Buffett, although I see him as an extreme example. He’s one of the richest billionaires in the world and he still lives in the same old house, does his morning commutes to work and stopping at McDonald’s for a breakfast McMuffin, and has gone to the same office since the beginning.

Being frugal is a great trait when one decides to become an investor. And I think of the Millionaire Next Door as someone who has done the right thing and invest in a good 401K, or having started an IRA or Roth IRA. This along with a good company that offers a pension plan will make things so much easier in one’s later years. And especially if you are one of those FIRE folks (Financial Independence, Retire Early)… that plan starts when you are young.

Unfortunately, I’m not one of those folks that achieved FIRE, but that’s reality. When I was younger I had so much credit card debt and I would spend and spend. I didn’t budget, and that’s where I think a trader/investor should also treat his/herself as a business. You have expenses, you have income, and you should have a business plan.

I’m in a better place right now financially, and I have no credit card debt! I budget monthly, keeping track of expenditures, income and assets as if my family is a business. And basically, it is. I’m self-employed and I run my life like a business, and this works well with my job of buying and selling securities on the stock market.

Just A Few Basic Strategies

I touch (or will touch) on these in other posts, but basically I tend to follow these basic strategies.

  1. Keep things Simple – this is just for me, and everyone will be different, but I like to keep things as simple as possible. I only invest in stocks. No options, no commodities, no futures trading.
  2. Diversification – this is the most basic strategy, and I try to diversify in a handful of sectors. I like to pick stocks from the financial sector as well as technology, and throw in an energy stock or consumer goods stock. Don’t put all your eggs in one basket.
  3. DRIPs – which stands for dividend re-investment program. basically, DRIPs will take a dividend and convert it into fractional shares of a stock. this is good tax-wise, as re-investing into fractional shares will forego any taxes on the stock if you have a standard brokerage account that is taxable.
  4. Consider the Magnificent 7 – These are the tried-and-true big market cap stocks that have been the most successful in the past few years: AAPL, MSFT, AMZN, GOOG (GOOGL), NVDA, META and TSLA. Although, TSLA has been the poorest performing of the 7 lately.
  5. Further Diversification – includes investing in big market cap stocks as well as small market cap stocks. or mixing investments like ETFs, REITs, mutual funds, index funds, real estate, stocks and bonds.
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Portfolio Manager & Musician

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