Here’s a good snippet from David Ol’s article which I’d like to share:
Discipline is good but it is not sustainable. There will be days where the discipline is broken. This is why rich people integrate their tasks into their lives. Here is how it works.
Integration is structuring your environment and time to force you to do certain tasks. A young millionaire does this for workouts by having a gym in his house. At the time stipulated for workouts, he has a workout group that shows up to his house. By the time those ones show up to his house for a workout session, he has to join them. They hold him accountable for his decision to have a workout session at the time set aside for it.
Integration is organizing your environment and schedule to make default decisions. You have to decide or choose to do something every day with discipline. With the integration, you make no decisions. You are forced to do it.
Integration is a combination of creating a system that cancels all barriers to doing the task and creating an effective system that keeps you accountable. It is how the rich get going when the walk is difficult. Regular people often trust their discipline and it fails.
Integration makes the rich richer because it keeps them going when it gets difficult and depressing. In a lot of cases, success is a product of consistency.
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- In panic times, people who don’t have systems get revealed that they never have systems in place to get to their longterm returns. let me discuss to you the rational of 3–5% position weights and why others lower these weights to increase cash exposures when risk is perceived higher (note the word perceived because preparing for risk doesn’t assure a crash will really come.) Preparation is better than prediction, a cliche I keep repeating again and again.
let’s give thorough examples:
Everyone loves disney for their longterm portfolios. How do we handle any potential downturn in case disney drops to 100 or 90? Will there be 25% drops soon? Or never?
Given we’re planning longterm if year 2020 can lead to less traffic in disney parks — and hesitation on new Ceo Bob Chapek — We’re already posting the following
1.) 3% portfolio buy at 107, while range trading a sell at 130–140 in the next six to 12 months.
No aggressive selling needed. just range trading. The cash you sell at 130 is the same cash you buy at 100 or 110 — until the virus breaks while holding and maintaining your longterm weights capped maximum at 10% of portfolio for one individual name.
2.) so what should you do if you like a longterm secular winner but faced with short term headwinds? Your approach should be never to add on losers.
assume 3% weight allocated on Roku with cost of 130. With the impending possibility of going to 100, any rallies near 125 are to be sold with the same proceeds to be bought either at 100 or 80.
3.) With longterm winners also likely to get hit, some would take comfort holding cash which is why square’s great earnings news can be seen as a sell on good news 80–85 levels. However these are less important names to be sold given they show winning attitudes and performances.
How much Cash is Really Necessary?
subjective but 25% -50% cash is good enough for investing longterm portfolios
Trading portfolios who like to go in and out can exaggeratedly have 75% or 90% cash levels which is also fine because they also deploy their buybacks on the market sooner and faster than long term portfolios.
Have a healthy amount of respect for risk.
That’s all. Raising cash exposures is to be integrated in any system of higher volatility. ;)
- faceless trader
