And what is an authentic madman? It is a man who preferred to become mad, in the socially accepted sense of the word, rather than forfeit a certain superior idea of human honor. So society has strangled in its asylums all those it wanted to get rid of or protect itself from, because they refused to become its accomplices in certain great nastiness. For a madman is also a man whom society did not want to hear and whom it wanted to prevent from uttering certain intolerable truths.
Antonin Artaud 1896-1948, French Theater Producer, Actor, Theorist
I am constantly asked the question, sol how many portfolios should one have? If it were bill (one of my old friends) asking me that question, I would reply with the following answer. As many portfolios as your insane minds tells you to have. Okay I am just joking there. You know what they say insanity might actually be a form of higher thinking. Don't most individuals attack anything that is new and different and quickly label it insane. Could it be that insane people are actually the smart ones who have broken free from the chains of normality or what is deemed to be normal? Off course at this point in time I am not referring to psychopathic killers and individuals that smash their heads against the wall. Its just a thought, throughout history geniuses have always been called insane and normal idiots who have nothing new to say or contribute to society other than being loud mouths are deemed sane.
I will examine this issue in more detail in a future market update, each week I try to make sure that I wont have to spend hours and hours with the update and without fail I end up having to spend more and more time. I guess it's the paradox effect kicking in, that which you most seek you do not get and that which you least want is what you end up getting very easily.
We all have a childish side to ourselves, most of us have been taught to hide this part and bury it, as it's not proper to behave in this manner. But to hell with proper, I say its absolutely necessary to sometimes goof around, just ask Bill, out of a 24 hour day he goofs around for 22 hours J.
If you do not goof around a bit, you actually lose the ability to truly fully enjoy life. We had great fun when we were kids. Think about the time you really had fun, the time you laughed so hard and the time when you felt so good that nothing in the world mattered. For those of you that have taken life seriously, so much time has passed by that you probably do not remember such a day. So go out one day and look at some kids playing around and watch when they are laughing and having fun, they do so with such a gusto that you hardly ever seen in adults. Most adults have the lost the ability to have pure UN adulterated fun. So what does this have to do with portfolio management?
Inside each one of us sits a little goblin that wants to win it all, that wants to go out and make a fortune that wants to hit the big one and so on. We respond to this little devil in the following two ways, we either control ourselves completely, bury this side or we give into it fully and start playing very risky by dedicating our entire portfolio to options and futures trading. Both those choices are wrong, burying it only means that it will surface one day with ten times as much strength. We constantly hear stories of investors who made a fortune in the stock market only to lose it all, a 100 times faster with some silly trades, if you give in to it, well then there is nothing much to talk about, because you will be squashed like bug.
What is the solution? The solution is to create the megalomaniac portfolio. I actually have one and it has helped improve my skills tremendously since I don't have to fight my silly urges anymore. Its very small and I behave like a truly insane being when it comes to this portfolio, I chose the most riskiest penny stocks I can find and I buy them, off course I spend time using TA and other tools. But in this way I am able to satisfy this urge that I have by playing with a really small amount of money and if I should lose it, it won't really affect me. You might find out that when you actually try to lose money you end up winning. Life can be rather strange.
So take a small % of your money and I mean small % and put it in a completely separate account. Spend time learning TA etc and then let your insane side lose, this way you can trade with more discipline when it comes to your main portfolios.
As far as investing goes there is no such this as a risk free investment. There is always risk, the only thing you can control is the amount of risk.
Many of you are fooled into believing that if you trade mutual funds only you will lower your risk significantly, perhaps you might but you will also lower your gains in a very significant way.
You can also read this article on our website that also deals with the subject of
Portfolio Management in more detail.
Now lets look at the lower risk perception of mutual funds.
A mutual fund is nothing but a basket of stocks, this basket of stocks has been purchased by some mutual fund manager, who probably knows a lot less about investing than you do. In most cases a monkey with a pair of darts could do better. So if you think that mutual fund investing is the solution to a stress free life, try to imagine how you would feel if you decided to let a chimpanzee drive your brand new car with you in the back seat.
One technique is to do the following.
For those that have over 65K, consider dedicating 20K or more just to mutual funds and ETF's and then a portion to your stock trading portfolios, which should be broken into the long term hold till the trend is over portfolio (which currently is a precious metal and commodities based portfolio) and a trading portfolio.
However everyone should consider having a mini tiny portfolio, which we have termed the megalomaniac portfolio to let your wild side out. Certainly most of have lost small fortunes letting others manage their money. So it does not seem like a bad idea to invest a small amount of risk money into this wild venture. This way perhaps you you're your mind to handle the portfolios that really matter in a more efficient manner. Perhaps you could put only 500 dollars or less in it, depending on how much money you have. Some could put even more, but whatever amount you decide to allocate to this portfolio make sure its money you can afford to lose. Personally I think no one should put more than 2k into this venture.
© 2003 Sol Palha
28 April 2004
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