Zach's Asset Allocation Strategy

It's impossible to conjure up a generic asset allocation strategy for someone without knowing their tolerance and capacity for risk, their short and long term goals, and the time they have to dedicate to managing their money. So I'm not going to try to do that. Instead, I'm going to describe my strategy of asset allocation and you decide if that might work for you.

My strategy is partly based on my fundamental investment philosophy that states, preservation of capital comes first, achieving maximum profits second. It's also based on a variant of a strategy described in the book "The Black Swan: The Impact of the Highly Improbable." It's a New York Times best seller, written by Nassim Nicholas Taleb.

A Black Swan is a highly improbable event that has three characteristics: It is unpredictable, it has incredible impact, and after it happens we invent a reason for it that makes it seem less probable. The success of Apple, with the return of Steve Jobs was a black swan; as was 911. According to Taleb, black swans are endemic throughout our world.

Taleb describes a strategy for investing that relies on this principle. And that's to take 90% of your assets and put them in the most conservative investment vehicles possible (treasuries, bonds, etc.), then take the remaining 10% and invest small portions into a number of extremely risky stocks or ventures. And then let the black swan emerge. Of course there's a chance you may never hit the jackpot, but you won't lose anything either.

Well, that's a bit extreme for me. While I want to maximize the potential to grow my assets, I need to balance that with protecting what I've managed to save for retirement. So, I've simply tweaked Taleb's allocation between the conservative and risky investment piles, and taken a more traditional approach of diversification within each pile. My allocation percentage is 80% conservative, 20% speculative.

Yup, the old 80/20 rule. Also known as the Pareto principle, which states that for many events, 80% of the effects come from 20% of the causes. Just like in business, 80% of the sales persons comes from 20% of the clients. Well, in my portfolio, 80% of my growth will come from 20% of the assets.

The conservative portion of my portfolio is invested in a mix of index funds, EFTs, treasuries, and real estate. The securities sit in a retirement account, for me that's a SEP IRA. I've chosen the mix of funds based on my risk profile. The plan is that as I get closer to retirement, I'll re-allocate the securities into more conservative choices. This generally means buying into a greater percentage of treasuries.

In my speculative portfolio I trade stocks through a brokerage account. I use margin to some degree, when the risk-reward ratio is favorable, but for the most part I limit positions to the available funds in the account. My goal is to diversify the investments in this account, but not to the detriment of making profit. My trading style is to take profits quickly, and when this account grows bigger than my 20% allotment, I move the excess into the IRA.

Now this brokerage account requires a significant amount of effort because I swing trade. So, the technical analysis required to manage the trades and mine opportunities can be significant. But I do it because I'm good at it and it's fun. Besides, it provides me with an endless number of subjects to write about in this blog.

The Zach Bass Investment Philosophy, Part2

What do you need to know when your investing thousand, perhaps hundreds of thousands of dollars in a stock? Well, in the astute words of the smart real estate investor, philanthropist, author of many books, such as "The Action Principles," and world renowned martial artists, Bill Fitzpatrick, you need to "Know Everything." Before you buy a single share, before you purchase that investment property, you need to know everything there is to know that might influence that investment. Otherwise it's a fool's gambit.

You need to know the company behind the stock, its products and competitors. You need to have an acute and tacit knowledge of the industry, sector and market conditions that will likely influence investor sentiment. You must know how to analyze the fundamentals of this company, as well as the fundamentals of the market and industry it belongs to. You need to be a skilled chartist to perform technical analysis of the stock and markets to understand resistance and support levels, price/volume momentum, contrarian indicators, patterns, and much more.

Believe it or not most investors go long or short on a stock based on their feeling that it is likely to go their way after they purchase that stock. Let's be honest, there are some people in this world that have extraordinary capabilities that allow them to see things that others simply cannot, these people are called savants. Savants are learned, distinguished professionals that have earned their spot through hard work and innate brilliance, then there are the idiot savant like rain man, who are mostly good at just remembering stuff, not very good at analyzing and predicting. Then there's Marilyn Vos Savant, she's just brilliant and a looker to boot!

So, the one piece of advice that I would impart onto you before making any investment decision, the mainstay of my investing philosophy, that would be, know everything. Once you know everything, then you need to develop a plan, a strategy for entering into the investment, and a strategy for managing it while you are a holder, and a strategy for exiting the investment. This process is not stagnant either, it a free flowing, more artful than mechanical. You might do well to read The Art of War, by Sun Tzu to gain a full appreciation, as many a business men and investors have found applicable wisdom in it. Investing is not unlike what the general must do in preparation for battle. And like battle, you never know what the enemy (market forces) is going to do, so in all likelihood, your plan will change. This means that you must have a strategy the is adaptable.

I'll finish this segment with a look at what the plan looks like and a definition of the key parts. Every trade you make should have the following components:

• Entry - the price you should try to get within a defined range.


• Target - the price you have determined to be the upside potential to be.


• Stop - the price you should sell at (usually on a closing basis, sometimes intra session) if it falls below the Entry.


• Risk - a factor (low, medium, high) that assesses the chance that the stock will achieve the Target price

In future installments of "The Zach Bass Investment Philosophy," I'll go into more detail on developing the strategy and methods of analysis. And Ill make the distinction between managing in-and-out trades, versus managing a long term trade like APPL.

-zach bass

The Zach Bass Investment Philosophy, Part 1

Individual investors are perpetually searching for the investment philosophy that'll bring them the wealth and independence they believe they so rightly deserve. Should I buy low, sell high; or should I buy and hold? What's the best strategy to make money, preserve my capital, how do I avoid going on full tilt?

Well, I'm going to tell you that ALL the strategies are full of bunk. All investment strategies are full of bunk because the underlying assumption is that you can consistently beat or time the market if you follow that strategy. Why else would you adopt a strategy in the first place unless you believed you could beat the market? Winning is the name of the game, right? And to win, you must have a plan. A man, or woman, without a plan is not a man, right?

Sure, there are fellers that beat the market and make fortunes. There are also guys that make it to The Show (that's baseball lingo for the Major Leagues). But they are so few and far between, why would anyone think there's a strategy out there that will afford anyone the opportunity to achieve this kind of success. The fact is that there is no such strategy. It's just that some people are blessed, or have the capacity to develop extraordinary capabilities that allow them through hard work and dedication to achieve the pinnacles of success. And once in a while a person can get lucky and win the lottery too. But the average Joe is just not going to reach the top, no matter what the strategy.

Well, why can't everyone be a winner? Everyone can't be a winner on these terms because if everyone was a winner, the definition of winner would no longer have any value or meaning. Besides, it really comes down to how you define winner, and what it means to win. So, your investment strategy should have a goal, but I don't think it should be winning. Because if it is, you may never achieve that goal. And what good is it to have goals that you may never achieve.

Now, I want to make something perfectly clear. I'm not saying that you can't achieve fantastic wealth and independence. And I'm not saying that you shouldn't set lofty goals, or lower your expectations, or just strive for mediocrity. On the contrary. What I'm saying is you must redefine, the goals that your trying to achieve, and thus your strategy should really be a philosophy that guides your actions.

You see, the reality is that even if you achieve the pinnacle of success, if that success doesn't make you happy, can you truly consider yourself a winner? Now we're getting down to the nut. The philosophy for successful investing is the same philosophy for any pursuit in life. And that is, the act of investing itself should bring you joy, fulfillment, and happiness, whether you are in the black or in the red.

I would compare this to going to the casino. Most people go to the casino with the hopes of winning, and many of us prepare for the casino games the best we can to give us the best chance possible to come home with more than we left with. But the real joy of going to the casino is the action, the lights, the shows, the girls. Did I say action? And sure it feels better to come home with a big wad of cash, but if you come home with nothing, then you lost only what you felt was an appropriate amount to lose and still have a good time, so then either way, you're a winner. If it's any other conclusion, then you have a gambling problem, perhaps an obsession that needs professional attention.

So, with this preamble, here's Zach Bass' philosophy for successful investing. Invest only what you can afford to lose and have fun investing. Educate yourself to the hilt. People ask me how much should I know before I even start investing. Well the answer to that is you need to know everything, and with that standard you should never start and you'll probably be way ahead of the average investor. But that's obviously not the answer you want to hear, because you want to invest, and you want to have fun, and having fun means enjoying successes. The thing is, without the education, you'll be hard pressed to enjoy consistent winning trades.

Education is the most important aspect of investing, and so you should have fun educating yourself. Besides, having fun and enjoying the action is the real goal, so arm yourself with as much knowledge as you can, then ask the following questions to determine if you were a winner: Do I feel good about the effort I put into that investment? Did I enjoy the process of educating myself for that investment? Did the results of the investment meet within the range of expectation I set for myself? If you answer in the affirmative for each of these questions then your investment experience was a success.

Here are some bullet points that should make your investing fun and successful:

• Only invest what you can afford to lose, some reasonable percentage of your total net-worth, based on your risk tolerance. This is your speculative account. For me that percentage is 20 percent, for some it will be more, others less.


• Diversify all other assets into long-term investments like index funds, bonds, real estate, etc., if you are employed by another, take full advantage of their retirement vehicles, if self employed, contribute at least double the maximum.


• Pick an industry and/or company that you find great interest in and learn everything there is to know about that industry/company, stay current. Continuously search out great resources.


• Learn everything there is to know about investing; the markets, technical analysis, corporate balance sheets, fundamentals, strategies of the successful, etc. It is important that you enjoy this part. If it's a drag or you suck at it, you're better off stuffing your money in a diversified mix of EFTs and Index Funds and forget about it, you'll do OK that way.


• Do not let your speculative investing activities contribute stress to your life. This actually goes for just about any activity or endeavor you pursue. Life is short, and you only got one shot at it, have as much fun with as little stress as possible.

Zach Bass and his Investment Blogging Goals

Zach has been wandering the Apple Ecosystem (Apple and companies/markets affected by, or impacting Apple) for 30 years. He has seen it all from every perspective imaginable; as a technologist, teacher, consultant, user, and investor. Through these experiences, Zach has evolved into a Zen master in the art of stock investing and technical chart analysis.

As the legend goes, Zach was perusing Apple investor blogs and message boards foraging for knowledge and insight, and found himself engorged in conversations with people of fantastic variety. The discourse was energizing, but the thing that disappointed him was the dearth of agenda-laden info pumpers. It became difficult to have dialog, share analysis and experiences. So, he decided to take a more structured approach, providing regular morning and afternoon posts, that provide analysis of major markets within an AAPL context.

So now, Zach tries to provide at least two daily outlooks on the markets with a focus on the Apple Ecosystem (aka AE). Zach envisions that this structure will help normalize dialog, and prove to be a useful resource for all involved.