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1ronnie

26,805 Posts.

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13/11/18

11:56

Post #: 36483659

Originally posted by 1ronnie ↑

Obviously, if you believe, like me, that equities are in the process of imploding and the best days are over and the Big Kahuna is just ahead of us within 24 months, capital allocation is of utmost priority.

To illustrate, 2 scenarios - Scenario 1 where minimal capital say 20% is deployed for opportunistic trades (with stop loss discipline of 20%) and the rest in bonds and cash and Scenario 2 the conventional wisdom of staying in equities for the long ride with up to 70% in equities.

Column 1 Column 2 Column 3 Column 4

1 SCENARIO 1

2 CAPITAL $ 100,000

3 ALLOCATION 20% OPPORTUNISTIC MANAGED TRADES (SHORT TERM)

4 20% CORP BONDS E.G VLWHA 6.25%

5 60% CASH

6

7 ASSET CLASS BEST RETURNS WORSE RETURNS

8 ST OPP TRADES 20.0% -9.0%

9 BONDS 6.25% 5.00%

10 CASH 2.0% 2.0%

11 COMPOSITE 6.5% 0.4%

12

13 SCENARIO 2 CONVENTIONAL WISDOM

14 CAPITAL $ 100,000

15 ALLOCATION 50% BLUE CHIP EQUITIES (LONG TERM HOLD)

16 20% SMALL CAPS EQUITIES (LONG TERM HOLD)

17 30% CASH

18 ASSET CLASS BEST RETURNS WORSE RETURNS

19 BLUE CHIP 5.0% -25.0%

20 SMALL CAPS 15.0% -50.0%

21 CASH 2.0% 2.0%

22 COMPOSITE 6.1% -21.9%

Scenario 1 could well offer a cap on negative returns when stocks suffer losses but its returns can be just as good on best case basis.
To achieve a 20% managed short term opportunity, it can involve 2 > 50% return stocks and 2 -20% return stocks (stop loss) while on the worse case basis, 2 single digit <10% return stocks and 2 -25% return stocks. Under managed basis, the key is to know when to cut loss and minimise a trade that has gone pear shape (no denial in works). And to let your hero run a bit more but know when exactly exuberance got out of hand - examples have been BIT and 4DS in recent times.

*The above is illustrative only and not an advice on money management or financial planning to suit your own circumstances.

Expand

Read what Geoff Harris, co founder of Flight Centre has to say about his outlook for investments. He advocates a switch to cash and an approach to sit out of the market over the next 24 months as we are nearing the end of the bull cycle. Smart money is out of equities!
https://www.copyright link/leadersh...-geoff-harris-investment-tips-20181109-h17pm2

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	Column 1	Column 2	Column 3
1	SCENARIO 1
2	CAPITAL	$ 100,000
3	ALLOCATION	20%	OPPORTUNISTIC MANAGED TRADES (SHORT TERM)
4		20%	CORP BONDS E.G VLWHA 6.25%
5		60%	CASH
6
7	ASSET CLASS	BEST RETURNS	WORSE RETURNS
8	ST OPP TRADES	20.0%	-9.0%
9	BONDS	6.25%	5.00%
10	CASH	2.0%	2.0%
11	COMPOSITE	6.5%	0.4%
12
13	SCENARIO 2	CONVENTIONAL WISDOM
14	CAPITAL	$ 100,000
15	ALLOCATION	50%	BLUE CHIP EQUITIES (LONG TERM HOLD)
16		20%	SMALL CAPS EQUITIES (LONG TERM HOLD)
17		30%	CASH
18	ASSET CLASS	BEST RETURNS	WORSE RETURNS
19	BLUE CHIP	5.0%	-25.0%
20	SMALL CAPS	15.0%	-50.0%
21	CASH	2.0%	2.0%
22	COMPOSITE	6.1%	-21.9%

Its Over, page-404

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