I’m going to set up a $100,000 model portfolio. 50% of the cash will be used for 5 core investment positions, meaning that these stocks will be bought with the intent of owning it for at least 1 year. The investment positions will be $10,000 each and will be scaled into in 3 tranches. The other 50% of the cash will be used for short-term trading positions. This means that trading positions will only be held for 1 to 2 weeks, trying to capture a 15% profit within that time period. The trading positions will consist mainly of equities but I will also utilize leveraged ETFs, inverse ETFs, commodity ETFs, currency ETFs, volatility ETFs, actively managed ETFs, and any other type of ETF that can give me exposure to volatile markets outside of equities where large gains can be made quickly. The trading positions will be no smaller than 10% of the cash allocated towards trading but no larger than 20%. Meaning that the maximum number of trading positions at any one time will be 5 different positions. The purpose of the trading cash is almost entirely to satisfy my need to act on the massive amount of research that I do. Listening to hours of conference calls, reading countless annual reports, imputing thousands of financial numbers into excel, and hundreds of news articles/blogs per day, I need to act on this information. This allows me to stay constantly on top of what is going on in the market, allows me to express my ideas and opinions through short-term trading, and keeps me constantly excited and motivated to keep working like a maniac every day. The investment positions and the short-term trading positions will be clearly segregated and the investments will be held without using stop-losses, they will absolutely, no matter what be held for 1 full year. I will mainly be investing in “growth companies”. I typically am not interested in any company that isn’t growing its revenues by at least 40% per year. As a result the companies that I buy usually have P/E multiples well above the historical market average. In fact, I am probably way more comfortable buying a stock with a 30 P/E than I am one with a 10 P/E. In bull markets I want to be in high-growth, high-multiple, momentum stocks. If the earnings power is strong and the quality of their growth is pure, I have no problem “paying up for growth”. Not buying a stock because it was “too expensive” has caused me to miss too many opportunities for me to care about a stock’s so called “high valuation”. I’ve seen countless of stocks with P/E’s above 60 go up 100% from the time I looked at their “nose-bleed valuations”. Secondly, low P/E, stocks with low Price to sales ratios are typically junk companies. They have little to no growth, poor management, inferior products, inferior quality, inferior talent, etc. Cheap stocks are cheap because nobody wants to own them. Like anything in life you get what you pay for. Ferraris cost a lot more than Kias and that’s because they are a much better quality vehicle. Great companies, with great management, great products, great marketing, growth should be and will be far more expensive than the competitors that they are stealing market share from.
Anyways, I’m going to set up the model account now and find my first investment and trade.