Tuesday, May 20, 2014

My Investment Theory

After reading the book "Keynes's Way to Wealth: Timeless Investment Lessons from The Great Economist" by John F. Wasik. I have been inspired to write my own way to wealth and it is below. I recommend buying this book it has a history of Keynes's and his investments. I like how the book shows Keynes thinking as he became older and how he invested in the 1920's, 1930's and 1940's up to his death. This time period is one of the most difficult to invest in. 


My Investment Theory  
My Way to Wealth 
Getting Started 
The main goal is to compound our money. To build up principle making passive income to live on each month. Look at stocks like owning a house and dividends as rent we collect. I invest in mostly dividend paying stocks and bond funds. The money is reinvested in the security or taken in cash to redeploy elsewhere. I like having a position in cash to take advantage when the market is fearful and to trim core positions as the market rises. Cash is the best way to be neutral and is a core position. Like a good General I only use this position if the risk reward is going to be successful. The portfolio will always have core positions in companies who have demonstrated over many years the ability to return money to shareholders and increase the value of the brand and business for example: Coke Cola (KO). I will use covered call options to lock in gains and help when the market goes lower. 

My philosophy takes shape from business greats such as: Warren Buffett, Charlie Munger, Kevin O’Leary and John M. Keynes. And many other greats.  I buy good companies at reasonable prices, collect dividends, and will be greedy when others are fearful and fearful when others are greedy. I like diversification but I tend to have 10 positions or less in the portfolio. This allows me to focus on my best ideas and understand fully what the companies are doing. 

Performance is very important! The only reason to invest is to make a profit. I like to compare the portfolio with the Dow Jones average and the SP 500 (SPY) index. These are the standard benchmarks for all investors.  I want to invest with managers who have consistently beat the averages over 1, 5, and 10 year periods. The stock market has been a great way to generate wealth over long periods of time. The average return annually since 1802 is 6.6% after inflation. 

General Motors (GM) the GOOD, BAD, AND UGLY!

I've been talking about GM on this blog because of its really big dividend yield. The company has been undervalued to the market for som...