Diversification, Strategy and Defense
The last month has been one of the most volatile in a very long time. The Nasdaq had one of the worst losses since the Dotcom days.
I’ve learned my lesson from the “lost decade” and 4 major stock market crashes and 2 real estate crashes, a global financial crisis and global pandemic and 3 American lead wars and can say without question we are living through a major secular bull market and this is going to be a rough ride.
We hear that diversification is so important to wealth CREATION and PRESERVATION. Yes, concentration builds accelerated growth but you’re also competing with the smartest, richest and most equipped hedge funds that move the market at their discretion. But understanding what and how diversification works to grow and PROTECT your wealth is even more critical to STAYING IN THE GAME, and being able to jump at the next opportunity.
I’ve been told by enough senior executives and CEO’s that I’m one of the most STRATEGIC people they have worked with. I always found their impression odd, given that strategy should be the basis of every intention.
Strategy begins with answering all of the following questions:
- What is your end game?
- What is the playing field?
- What are the obstacles?
- What are your resources, tools, techniques, knowledge and information available?
- What is the opportunity?
- What are the risks?
- What are all the options?
- What are the factored % probabilities of success and failure?
Now go figure out a comprehensive plan that incorporates all of the above that has the highest probability of achieving the end game.
But have a complete PLAN. Move forward with your OFFENSIVE moves, but have a DEFENSIVE plan.
What if your plan doesn’t work? And you might lose 10, 20, 30% or more of your entire portfolio?
Don’t tell me, well I’m in it for the long term. It can literally take decades to make it back. It took 20 years for me to recover my losses on Celestica and Bombardier.
Today, our plan includes for capturing (1) growth of the global, US and Canadian economies and therefore stocks. Our plan includes for (2) currency fluctuations especially USD and CAD and the swings between them and growing a USD cash pile. Most Canadian investors don’t realize how much of their recent wealth is actually a loss due to the erosion of the value of the Canadian dollar vs USD.
Our plan includes for (3) yield, both directly through individually selected dividend stocks, and indirectly from broad market ETFs. Yield of course is income and cash flow and as much as possible sustainable, reliable, and GROWING income and cash flow regardless of market volatility. My annual yield is now 2.5x my core expenses (not including discretionary “lifestyle” expenses). Almost approaching my target of 3 times safety. (Tip: you can’t get there with covered call ETFs over the long term)
Our plan has (4) a cash management strategy and four sources of income streams, diversifying and not be reliant on any single one to cover core living expenses, and continually build a cash pile of “dry powder” including trimming growth stocks on the way up to buy quality for growth, dividends and diversification on the way down. Currently we are at 20% cash and growing.
A Plan, a Strategy, Diversified, and a Defensive one for the reversal of the market at any given time. Nothing wrong with being a “prepper” and being able to “play” both sides of the market swings (no I don’t mean shorting!). This “project” has been a work in progress since 1997 and “floated” since retiring in 2022, tested for success with financial planning and modeling software that suggests 100% success rate via Monte Carlo simulations and other tests to fund our life, but I don’t take that as something for granted. I stay vigilant to changes in the global economy, politics and how the market reacts. Interesting enough, in the last 6 months we have made virtually no trades. Just sitting tight and watching…
