Saturday, December 5, 2009

Writing your own Investment Policy

The most important thing when starting out is to know your investment temperament(trader or investor) and lay out your Investment Policy. This is my initial draft investment policy if you are interested to peruse, but you could always find a lot of suggestions from books of proven gurus.

As for the number of stocks to hold, you have to understand yourself. Some proven investors like concentration, others like diversification. Buffett once said something along the line of "The worst group of investors out there are the one who thinks they know but in fact, they don't know they don't know". So, to err on the safe side, I choose diversification as I find that unless you are an insider or with adequate industry knowledge, it is better to reduce the concentration risk thru diversification but not necessarily reducing the returns. Tweedy Browne have been an advocate of diversification with value investing and have outperformed the US indexes for decades.


dream said...

wow, that is fantastic. I don't have one like that.

do you always that before you start investing or did you figure that out as you go along? thanks, great stuff!

Wealth Journey said...

Thanks for the compliment.

yup, it was done along the way as you start to figure out what might work for you.

I think a policy helps me internalise all the things that I want in a investment portfolio. When you start to list them out , you will start to pay more attention to investments baring the attributes you desired.

Probably a case of understanding what you want and when it comes to you , you will know.. :)

I can see you are a trader - Triple Screen ... Sounds like a Bloomberg

Wealth Journey said...

Oh.. for traders, I guess you have to internalise the chart patterns? Cup and handle, head & shoulders etc etc.. Don't know much about charts, but I guess when you see a good pattern, you will know it! :)

dream said...

Appreciate the explanation.

We are sort of a hybrid investor/trader team. The counters that we trade go through FA "filtering" first. The FA "filtering" process is typically "outsourced" to third-parties.

The "fundamentally good" counters are then arranged and updated according to geographies and industries. Each sector is monitored by the respective sector person for trading signals.

We trade primarily in the Singapore and Hong Kong market using instruments like stocks, bonds and options.

In terms of trading methodology and money management, we follow Dr. Elder's methods.

Wealth Journey said...

Sounds good! :) Best of both worlds.