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Following the deep dive on Traditional Assets, this entry is focused on Alternative Assets   To begin, let’s summarize our target allocations of 50% of ones’ total net worth.  Alternative Assets: Target 50% | Actual % Real estate: 10% | TBD Commodities: 10% | TBD Private equity: 10% | TBD Cryptocurrency: 20% | TBD Real estate: 10% - For my current situation, real estate requires more capital than I have, such that I cannot purchase entire buildings or acres of land by myself.

We discussed the two broad asset classes, traditional and alternative, in prior blogs. For this edition I would like to take a deep dive into my thoughts and questions on Traditional Assets. A similar deep dive on Alternative Assets will follow in future blogs. To begin, let’s summarize our target allocations of 50% of ones’ total net worth.  Traditional Assets: Target 50% | Actual % Equities: 20% | TBD Bonds: 10% | TBD  Cash: 20% | TBD I prefer the flexibility of tracking a

I have been working on a model for cash I call ‘2 and 20’.  What it means is, hold 2 years of cash for your operating expenses (i.e., to live on), and then within the portfolio allocation for stocks, hold up to 20% in cash when the market has gotten overbought and therefore overvalued.  What this ‘2 and 20’ model allows for is: The 2 - Comfort and safety that your living expenses for the next two years are covered by your cash reserve. The 20 - Ability to take risk and emotio

I was talking with my grandparents recently about the high interest rate environment of 1981.  Why didn’t everyone invest in high-yielding US Treasuries back then, the rates were over 15% for the 10 year, I asked? It was a bad deal, I was told. But that left me wanting to know why and how that could be. Well, that 15% interest it turns out was the nominal rate, before any adjustments for the inflation rate.  And what if the inflation rate at the time was 10%, for illustrative

Risk is an often misunderstood concept. At the most basic level, risk is the likelihood (e.g., probability) that a particular event occurs and the impact of that event.  Another way to think about risk is threat multiplied by vulnerability multiplied by the asset value.  In my experience, the ability to confidently and accurately calculate risk by anyone is suspect. Every assumption that went into the risk estimate is subject to error and abuse. In practical terms, I would ha

A concept that could help my buy, sell, hold decision making process is the hurdle rate. The hurdle rate is the minimum acceptable rate of return an investor requires for that endeavor to be considered worthwhile.  Factors such as the cost of capital (e.g., the interest rate charged to borrow money for example), risk premium, and inflation are figured into the final hurdle rate.   A related concept is the ‘risk-free rate’ or the rate of return for a US Treasury debt instrumen

We have explored in this series a number of foundational concepts, each building upon another and yet inextricably linked together. We have discussed portfolio sizing, portfolio positioning, mark-to-market (MTM), time and timing.  Each leads to three decisions: buy, sell, hold. Buy - should I open or add to a position? Sell - should I close or trim a position? Hold - should I do nothing with regard to a position? Each decision, buy-sell-hold, should be viewed in context to po

I have been tuning the views of my Thinkorswim charts to include both money flow and market sentiment in an attempt to better understand the underlying dynamics that may be driving specific price action up or down.  The Money Flow Index (MFI), is a momentum indicator that uses price and volume to measure buying and selling pressure in a given security. The MFI is measured in a range from zero to one hundred, signaling a potentially overbought condition when above 80 and an ov

Time has a lot to do with asset valuations. From how long will you be borrowing money for, to how long you hold a stock or option contract before you sell it, time is a critical variable.  Timing, on the other hand, has more to do with when you buy or sell. Do you buy today and sell in two weeks?  Let's explore why we care about time and timing, the key concepts, and how it works. Timing impacts whether we will enjoy the price appreciation up, and avoid the drop down.  In oth

Essentially a fancy way of saying how much something is worth, mark-to-market (MTM) is an accounting method for valuation of assets and liabilities. Let’s start with a few definitions and then explore why we care about MTM. Definitions:  Valuation or “Fair Value” - the price at which an asset can be sold or settled today, given today’s economic and related variables taken into consideration.   MTM Accounting Treatment - the treatment of recognizing gains and losses on the fin

Portfolio sizing, or how much of your total net worth should be exposed in a single investment, is a frequent topic of investment debate. Often the single most important decision an investor makes, yet it is not well understood by many retail investors. Sizing and the rules, upon which adding and trimming (i.e., buying and selling) from an investment are made, are perhaps the most influential factors in what drives modern equity markets.  To illustrate the significance of por

Now that we covered position sizing in the last edition, the logical next topic is positioning. In other words, we need to determine which asset classes and which specific assets we should be investing in as part of our holistic portfolio.  For this entry, let’s break assets broadly into two categories with brief descriptions: Traditional Assets and Alternative Assets. Traditional assets are classically broken further into three groups, with each group reflecting an implied r

Compliance with laws and regulations. Accountability for actions and decisions.  As a society, we may take these for granted, but the...

Understanding financial markets can seem daunting. With numbers flying around and complex terms being thrown about, it is easy to feel lost. However, financial markets are not just about numbers. They are about people, decisions, and the economy. In this post, we will break down the basics of financial markets and explore the economics behind them. Financial markets play a crucial role in our daily lives. They influence everything from the interest rates on our loans to the p

In today's interconnected world, understanding global economic trends is more important than ever. The economy does not exist in a...

In today's interconnected world, the relationship between geopolitics and finance is more crucial than ever. Investors must navigate a...