Thinking Outside the Street Podcast Episode 4 – Staying Active Can Lead to a Fit Portfolio

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In This Episode:  Paul and Cliff discuss the concept of active investment management and why it offers opportunities to avoid some risk in your portfolio.

  • Even though Buy and Hold strategies can work over time, most investors actively manage their buy and hold accounts by getting in and out at exaxtly the wrong time.
  • The primary goal of active management is to lower the risk of loss in a portfolio…not to maximize gain. Warren Buffet – “Rule 1: Don”t lose money! Rule 2: See rule one!”
  • Not losing is more important than always winning (the math proves it).
  • These days, active management can be found in highly liquid and transparent accounts.
  • The key to good active management is to have a good strategy (multiple strategies are better) and then to have the discipline to follow the strategy rules .

References

  • Mark Douglas. Trading In The Zone. A good book about managing the psychology of trading your account.
  • Van Tharp. Trade Your Way To Financial Freedom – Although much of this book is about day trading (which we think is a very hard way to make money) the principles of strategy development, measurement, and discipline are worth the read. Van Tharp has a website with a lot of resource material. If you are a do-it-yourselfer and like to spend a lot of money on books and DVD’s then you will be excited to visit the site. Otherwise, much of his teaching can be had through his several books which are not too expensive.
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