a different view on investing

  

WHAT IS A MODEL PORTFOLIO?

Our model portfolio is simply an example: you cannot buy into it. But you can copy it yourself, and in the process become a successful investor.

Not only is our strategy selected in an intuitive fashion, but because over the years we have learned to place so much faith in it, we sometimes take unorthodox steps to implement it. The prime example is the holdings in our Model Portfolio (MP), which have done remarkably well since its inception in February 2004 (see chart at end of page).

If you ask investment advice from a stockbroker or a financial adviser, you will nearly always be given a spread of asset classes. He will recommend you place your money in stocks from several different economic sectors, or that you hold a mix of stocks and bonds. This is seemingly a good idea. If you invest in just oil companies, for example, and the price of oil starts falling, all your stocks are liable to go down in price. So, a little bit of this and a little bit of that is the stockbroker credo for private investors: a few tech stocks, a few pharmaceutical company stocks, some government bonds perhaps, and, er, let's see, what about a mobile telecom provider, perhaps?

The Intuitive Investor thinks that's not such a good plan as it at first seems.

Much of our investment strategy will only mature once recession does take clear hold of the US economy. Even in the first quarter of 2008, most financial professionals believe that any recession, if it does take place at all, will be mild and brief. Thanks to the II's dad, however, we know recession is coming, and we foresee a long and painful economic depression, and in such times just about everything from every sector goes downhill. It has nothing to do with the intrinsic worth of a certain stock, but rather a loss of liquidity in the market. In other words, when depression hits, people need to sell both good investments and bad in order to raise cash. All stocks, and later most bonds, fall steeply in price.

Or, almost all.

The art is to find the investments which will hold up even in - or perhaps because of - a deep recession. And preferably investments which will do okay even before recession hits. That may mean:

(a) keeping a fair amount of your capital liquid - in cash - and uninvested;
(b) holding a commodity which will weather the storm, and probably would profit from it;
(c) finding a good mutual fund which would make money from stocks falling.

This The Intuitive Investor's MP has done, and since its inception in 2004 it has done remarkably well (see chart below). We have compared it to the Dow Jones Industrial Average (DJIA) in US dollars, Euros and British pounds.

 

Note that the chart was last updated as of the 28rdMay, 2021. Details of the components are available to subscribers.

And one last thing, we are not short-term traders. Instead, we chose the holdings really well, right at the start, and then we did what you clearly ought to do with a holding - we held on to them. Therefore, a major advantage over most investment strategies is its low costs.

We have made very, very few changes in the model portfolio's composition over its ten years and eight months life. You can make your own decisions based on the model portfolio, and then sit back and wait.

Last Updated: 30th May, 2021 - Copyright © 2002- 2021