DIY Investor Magazine
/
2015 Issue
45
Livermore left us a set of axioms that remain relevant
today; here are four out of his many sayings which
influence the way in which we operate Saltydog.
•
The game of financial speculation is the most
uniformly fascinating game in the world. It is not
for the stupid, the mentally lazy or the get-rich
adventurer. They will all die poor.
•
The only thing to do when a man is wrong is to be
right by ceasing to be wrong.
•
A stock operator has to fight a lot of expensive
enemies within himself.
•
Losing money is the least of my troubles. A loss
never bothers me after I take it. I forget it overnight.
But being wrong- not taking the loss- that is what does
damage to the pocket book and the soul. His message
and our lesson is that it is important to recognise a loss-
making situation and step away. He is also saying that it
is not necessary to get rich quickly. After all, what is so
bad about getting rich slowly? Also, you do not have to
be super clever to make a good investor, you must just
not be greedy and be prepared to leave your mistakes
behind and move on.
Early on we recognised the necessity to control the
amount of risk that we would be willing to take and
grouped sectors according to their volatility. We chose
nautical terminology to indicate the amount of risk in
the group.
•
Safe Haven
•
Slow Ahead
•
Steady as she Goes.
•
Full Steam ahead Developed markets.
•
Full Steam Ahead Emerging markets
We then created what we called our `cautious risk`
pie-chart named the Tugboat and allocated
percentages from each group into the pie-chart.
This would act as a control when we felt like being
adventurous. It was to remind us that however we
might like it to be, Grimsby unlike Hong Kong does not
translate into ‘Fragrant Harbour’!
FOR THESE EXAMPLES I HAVE IGNORED THE SAFE HAVEN GROUP, WHICH I ONLY USE IN EMERGENCIES
70%
20%
10%
30%
20%
17%
17%
16%
50%
30%
7%
7% 6%
SAFE HAVEN
The funds with the lowest risk and the least volatility
but also ones likely to deliver the lowest return. They
include cash and cash equivalent funds and are
worth considering if you may need to draw on your
investment in the short term, or you believe the market
conditions are currently unfavourable.
SLOW AHEAD
These funds involve a higher level of risk and greater
volatility than the Safe Haven funds but should offer the
potential for greater returns. These are predominately
fixed interest funds represented by UK Gilts, UK Index
linked Gilts, Corporate Bonds, Strategic Bonds, Global
Bonds and High Yield Bonds.
STEADY AS SHE GOES
These funds should be considered if you are willing to
accept even greater short term volatility in return for
even higher returns. You would also believe that the
markets were in a period of general growth. Funds in
this group are equity income funds or managed funds
represented by UK Equity Income, UK Equity & Bond
Income, UK Equity Income and Growth, Global Growth,
Cautious and Balanced Managed Funds.
FULL STEAM AHEAD DEVELOPED MARKETS
These funds are intrinsically more volatile and need
regular reviewing; to be considered only if you believe
that there is growth in the market. They will however
produce good returns if the markets are rising but
similarly large losses if they are falling. Sectors in this
group are UK All companies, UK Small companies,
Europe (including the UK), Europe (excluding the UK),
European Smaller companies, North America Small
companies, Japan (including small companies) and
Property.
FULL STEAM AHEAD EMERGING MARKETS &
SPECIALIST
Sectors in this group are; Asia Pacific
(excluding Japan), Asia Pacific (including Japan),
Global Emerging Markets, and Technology and
Telecommunications. The Specialist sector carries
funds that do not really fit into the other sectors;
Latin America, Russia, India, Korea, Natural resources,
Agriculture, Healthcare and Biotechnology. By varying
the amount invested in each group it is possible to
control the overall volatility of your portfolio.
Saltydog has been operating for just over four years
and during this time the markets have experienced five
large corrections and as you can see from the charts
