I'll be making some minor changes based on this book, especially in the area of performance tracking and reporting. One change I already made was to change my asset allocation to include a fixed income component.
Anyway, here are a few thoughts from the book which I agree with:
- Portfolio management is the effort to achieve personal goals and objectives using a stable strategy.
- The only valid performance analysis is one that compares your personal results with your own personally stated goals and objectives.
- Monitoring investment performance the Wall Street way (e.g. market value) is inappropriate and problematic for goal-oriented investors.
- Ultimately, the income generated by your assets is more important than their current market value.
- The classic long-term goal of an investment program is to live off the income produced by assets, without ever having to invade principal.
- The three big investment principles are quality, diversification, and income generation.
- In the long run, the inherent quality of the securities we buy will be the primary determinant of how successful our investment program becomes.
- A diversified portfolio will have no more than 5% of its assets in any one individual security.
- Never discount the importance of cash flow. Cash pays the bills, particularly at retirement.
- The three basic objectives are, growth of base income, profit production from trading, and overall growth in working capital. Market value, while monitored, does not play a role in meeting any of these objectives.
In future posts, I'll explain the changes I'm making to the performance tracking and reporting. This will take some time to setup, but I hope to have it complete by either Nov or Dec options expiration.