ZF Capital > Being Debt-free

Tradecraft – Portfolio Positioning

On July 2, 2010, In Good Articles, by ElfLord

I’M ALWAYS AMAZED TO SEE the unabashed confidence most commentators have in their outlooks on interest rates, the dollar or the next move for company XYZ. Even at the highest level, investing isn’t a science but an art. I don’t care what business school you went to. In the market, what happens next is anybody’s guess.

And while I’m never totally confident in my market outlook, I’m usually quite comfortable with my position in the market. Unlike the Nasdaq or S&P 500, which will rise and fall regardless of what I do, I actually have control over how my money is dispersed. So instead of focusing on making predictions, a smart trader should first concentrate on managing his portfolio. The market’s inherent uncertainty can be mitigated by a prudent, disciplined approach.

In the biggest sense, position refers to the financial foundation on which an investment portfolio is built. That’s why portfolio planning needs to start before the first buy order is ever placed. You can’t make wise bets on the market if you’re being distracted by unemployment, debt, an unsustainable lifestyle or other serious financial setbacks. (more…)

Tradecraft – Steady, Captain

On June 28, 2010, In Good Articles, by ElfLord

NEVER UNDERESTIMATE BALLAST. It’s the heavy stuff that keeps seafaring vessels steady amid the roughest waters.

Investors can use the idea of ballast to their benefit. Portfolios large and small should be grounded by conservative asset allocation and governed by a prudent approach, not to increase the speed of returns but to smooth the ride. When done well, adding ballast can help you boost your returns and keep you from getting seasick along the way.

Most people’s biggest investment is their home, which makes an ideal foundation for investment stability. You have to live somewhere, after all, and in most cases, buying a home you can afford is preferable to renting, regardless of where real estate prices are.

Did you catch the caveat? A home you can afford. Because while you might consider your home an asset, chances are it’s actually a liability — a rather large one. And while nobody knows for sure whether there’s a bubble in property prices right now, I can say with no uncertainty that there’s an abundance of exceptionally foolish investors taking risks in real estate they’ll no doubt live to regret. (more…)

Tradecraft – The Secret of My Financial Success

On May 21, 2010, In Good Articles, by ElfLord

LEST WE FORGET, the only reason we invest in the first place is to have more money. While money isn’t all that matters, it matters. Besides health and family, our financial assets may be our most valuable and prized possessions. Given how hard most of us work for our money, it makes sense to do what we can to have a bit more of it.

We can always opine about the economy or venture a guess on the next direction for the Dow. But through bull and bear markets alike, I keep coming back to fact that real wealth isn’t built from a good stock tip but from making prudence and frugality part of the everyday routine. Considering the exceptionally uninspiring state of the U.S. stock market, I believe now is an especially smart time to take a few weeks to get the financial house in order.

The stock market is an endlessly fascinating, dynamic and downright addictive animal. Yet most people who obsess over stocks ignore the real problem: poor financial habits. And although it’s super un-sexy when compared with day trading e-Minis or writing covered calls, the truth is it’s the little things — eliminating debt, reducing expenses and saving — on which fortunes are built. I don’t care how fast your quotes are: The market is always a crapshoot. However, developing good financial discipline, and sticking with it, is a guaranteed way to boost your bottom line. (more…)

Tradecraft – The Debt Dilemma

On May 17, 2010, In Good Articles, by ElfLord

IT’S ONE OF the great triumphs of the free market: No matter what your financial condition might be, there’s bound to be someone willing to lend you more money than you need.

Of course, debt is always a double-edged sword, and must be used with the greatest of care. In both investment portfolios and personal finances, debt should be a financial tool, not a way of life.

When it comes to investing, debt is most commonly used in the form of margin loans. It’s a simple process: Investors borrow money from brokers to buy securities. The expectation is that the investment return will more than cover the interest payment on the loan.

And there are plenty of investors, especially those who see investing as entertainment, who always trade the biggest positions possible, leveraging themselves to the hilt in the process. No matter what the state of the market or their portfolio, they’re dead set on swinging the biggest line their broker will allow. It’s a dangerous policy, often with expensive consequences. (more…)

Tradecraft – Sweat the Small Stuff

On April 23, 2010, In Good Articles, by ElfLord

ON THE MORNING of Jan. 28, 1986, the Space Shuttle Challenger lifted off from Kennedy Space Center. Just over a minute into the flight, the shuttle exploded, after a malfunctioning O-ring allowed highly combustible gas to leak from the right booster rocket. The upshot? A $900 piece of plastic managed to annihilate seven brave souls and a $1.2 billion spacecraft.

It’s the little things — those seemingly insignificant, everyday housekeeping details — that often make the most significant impacts on people’s lives. So I manage what catastrophic risks I can and, in short, I sweat the small stuff.

Most investment discussions inevitably turn to big events like a presidential election, earnings announcements or the economic cycle. But the truth is, it’s the small stuff — the nitty-gritty of how I actually allocate assets — that ultimately matters most. And while I can’t control who wins in November or how many diapers Wal-Mart (WMT) will sell in the second quarter, portfolio technique is under my complete discretion. No matter the size of a portfolio, there are some basic concepts from which everyone can benefit. (more…)

Tradecraft – A Dollar Saved Is a Dollar Earned

On January 8, 2010, In Good Articles, by ElfLord

BANKING IS THE MOST competitive and lucrative business in the world. It always has been. But here’s something you might not realize: Whether you’re a teacher, an executive, a construction worker or a salesman, the reality is that you are a banker, too — in charge of thousands of dollars of liquid assets every month.

Nowadays we think of banks simply as electronic accounts on which we can draw checks and earn interest. But historically, banks’ main purpose has been to protect assets. Years ago, one needed a local bank to store valuables in a safe deposit box, and depended on a bank to earn steady (if unspectacular) returns that would at least keep pace with inflation. Despite the once-per-generation stock market mania that sweeps over America, investors historically have been far more concerned with holding on to their wealth than with striking it rich with their investments. Rightfully so.

Before you can invest, you must save. And regardless of what the market does over the next few months, I predict the Depression-era savings mentality I first wrote about a couple of months ago will make a far bigger comeback than most people realize. The truth of the matter is that, right now, as much as it hurts to admit it, most people aren’t investors as much as they are aggressive savers — willing to take risk, but on a much more limited scale. And although stocks have historically been the highest-returning asset class over the long haul, for the first time in memory investors are unwilling to stick around to see if history repeats itself. (more…)

Tradecraft – Sorry, the Position Has Been Filled

On December 28, 2009, In Good Articles, by ElfLord

LIKE ESPRESSO AND chocolate truffles, investment advice comes in small doses these days. Even after watching the stock market crumble over the past few years, a positive mention in Business Week or analyst comments on CNBC still satisfies most people’s criteria for “research.”

But the truth is that, when considering a stock — or any financial instrument, for that matter — factors like the company’s earnings, the Federal Reserve, the economy or Abby Joseph Cohen simply aren’t that important. More than anything else, your existing position should influence how you invest and allocate your assets.

There is a bullish and bearish argument for every investment, and nobody knows the future. For every reason the stock market might now be at a bottom, there are just as many signs suggesting the worst is yet to come.

The thing to remember is that, as participants in a free market, we aren’t trading stocks as much as we are trading our positions. It’s a subtle difference that’s lost in the “buy, sell or hold” ethos that continues to dominate most people’s financial planning. The real question isn’t whether or not I want to buy XYZ, but whether I want to buy XYZ — and how much — considering my current positions and all the alternatives to buying XYZ, including buying nothing at all. (more…)

ZF Capital

Tradecraft – Portfolio Positioning

Tradecraft – Steady, Captain

Tradecraft – The Secret of My Financial Success

Tradecraft – The Debt Dilemma

Tradecraft – Sweat the Small Stuff

Tradecraft – A Dollar Saved Is a Dollar Earned

Tradecraft – Sorry, the Position Has Been Filled

Categories

Tags

Looking for something?

Visit our friends!

Archives