Building blocks in my portfolio strategy

As I told you in the last post that I have been working on a new strategy, which will be a mix between stocks and index funds. This post will be dedicated to describe the portfolio and the reason why I believe this is the best way to go.

From my experience in Vardia I reliazed the importance of diversification; the portfolio down 25% in one day is pretty bad when believing in value investment and that day got me to re-consider my diversification strategy and in the end my whole portfolio strategy. 

If you don't have a clear strategy for diversification and hiding behind Warren buffets strategy that is that if you know your companies you don't need to have to many in the portfolio (good article why Warren Buffet doesnt diversify here). I truly recommend you to re-consider your exposure to a few assets and think about all factors that could impact returns, everything from fraud to hackers gather all their data (think about Ashley Madison).

The new portfolio strategy will be built like this (percentage);

Stocks: 35%

Swedish index funds: 35%

Global index funds: 15%

U.S. index funds: 15%

This setup will be the building blocks in my portfolio, there will in most cases also be around 5% cash for unexpected opportunities. This 5% cash will be smaller as the portfolio grows and when it gets bigger there will be more monthly purchases. Why did I go for this strategy? Time.. Since I started to work I didn't reliaze how much time I spend on the work and how tired I am when I come home. In other words, I don't really believe I have the time to have 100% stocks in my portfolio, just because there's not enough time to analyse them and find the risks involved with them, therefore the diversification.

At the moment I'm 50% invested, and this will be the case for a while, since I believe we have pretty high valuations on the markets. This will change as soon as the market conditions are better, i got some this week; MasterCard (MA), Starbucks (SBUX) and DNB Global Indeks fund.

Now I'm off to a pool party, take care!

Eighth wonder investing

Documentaries for the general knowledge about investing and economy

Since I am a big fan of documentaries, economy and investing, I have seen the most investing and economy documentaries which are out there and I thought it could be a great idea to share my top list of the ones I seen. I don't have the time to write a small summary about everyone today and rate them, I will do it subsequently with around 4-5 per week. All of them could be seen under the tab "Documentaries" and of course ranked by rating. Hope you have the same taste as I have, the first four could be seen below.

Quants: Alchemists of Wall Street

Rating: 9/10
A documentary about the quants on Wall Street which are creating the complex products which are used in the financial world today. The documentary are showing how the world has becoming increasingly dependent on mathematical models trying to predict the future and quantify risk. I must say that the documentary are one of the best I have seen and especially if you believe in quantitative analysis of companies. Highly recommended.

Inside job

Rating: 8/10

One of the best documentaries reflecting the 2008 financial crisis. The movie is directed by Charles Ferguson and he described the movie during as being about "the systemic corruption of the United States by the financial services industry and the consequences of that systemic corruption". The film is narrated by Matt Damon, which has a harmonic voice and really get you interested and excited about the worlds economy. 

The plot is divded into five parts which all of them is describing the financial crisis in chronological order, with the start how we got there and where we are now (2010).

From my point of view this is really the best documentary about the financial crisis and is a must for all people that some kind of interests about economy.I give Inside Job a rating on 8 out of 10 from me.

The Tax Free Tour

Rating: 7/10

Documentary about how multinational enterprises are paying taxes (or not paying taxes) really good and with a lot of insight in different tax havens and the tax setup the big companies has today, also a bit humoristic at some parts. The same director as the Quants: Alchemists of Wall Street, Marije Meerman.

Where do multinationals pay taxes and how much? Gaining insight from international tax experts, Backlight director Marije Meerman, takes a look at tax havens, the people who live there and the routes along which tax is avoided globally.

Those routes go by resounding names like "Cayman Special", "Double Irish and Dutch Sandwich". A financial world operates in the shadows surrounded by a high level of secrecy. A place where sizable capital streams travel the world at the speed of light and avoid paying tax.

The Tax Free Tour is an economic thriller mapping the systemic risk for governments and citizens alike. Is this the price we have to pay for globalized capitalism?

The World's Greatest Money Maker: Warren Buffett

Rating: 6/10
As Warren Buffett were one of the ones who got me interesting in investing and how you think as a value investor I must say I were a bit disappointed on this documentary. On the other hand it could have with the reason that I read all books there is about Warren Buffett before I saw the documentary. That's why I am only giving this one a six out of ten, but I still think as a value investor you should have seen this. General knowledge for an investor.

Over and out,

EWI

About me and the Holy Grail

All,

As I said in my first blog post this will be an introduction about me and where I am financially at the moment (budget will be present in the upcoming week).

Defining the goal,
Since the age of fifteen my goal have always been to become financial independent, at first the dream were more to become wealthy but during the university something changed my mind and I actually realized that it is not wealth that are my holy grail, it is financial independence and freedom.

The goal is to exit everything that today are a must at the age of 40 and still have a decent life. This comes with some questions, which follows.

What is actually a decent life?
A decent life for me includes a couple of things, health, family (3-4 people), friends and material things. The only thing I actually can control is the material things, but I will still consider that we are two adults which split the costs equally when doing the estimation of a decent life budget, below the budget can be seen. Important note is that the budget is a hypothetical "decent life budget" for me in today's money, everything could be changed over the years. What do you think about it? To tight?

2491.5 euros per month does my money machine needs to generate, annually 29 898 euros. This implies that I need to have a cash flow from my investments which generates 29 898 euros on an annual basis.

What is a moderate cash flow to count with on my investments?
Since my investments only will consist of global dividends champs (when the goal is reached) will I calculate on a 3.3% dividend yield. Yes, I know it's above the average yield on S&P 500, which is around 2%. But since the focus will be on high dividend yield stocks, I still consider 3.3% to be achievable and moderate dividend yield.
In other words my goal will be reached when I have a total amount on 906 000 euros (29 898 EUR / 0.033), sounds like a big pile of cash, possible to achieve?

How should I now achieve this big pile of cash?
The tactic are pretty simple, save as much as possible and invest it wisely, my target is to put away 1000 euros per month and have a return on assets on 14 percent per year, as I said budget will come in the upcoming week. At the age of 41 and after 17 years I will reach my goal with, if I stick to 12 000 euros saved per year and with an annually return on assets by 14%.
As I said this calculation are very conservative,  I will probably be able to save more and I know my salary growth will be very high the upcoming years, expect my salary to double within three years. Simulation graph could be seen below.

216 000 euros are invested and 689 473 euros comes from return on assets, which really shows the value of compounded interest and what Warren Buffett would have called "The Snowball effect".

About me
As my journey and goal should be the important thing on this blog, will this section be short and effecient. I am 24 years old, five years at the university, degree´s within accounting and finance, having at the moment an international graduate position at a Fortune 500's Top 10 company and aiming for financial independence as soon as possible.
I decided to be anonymous and write under the pseudonym Eighth Wonder Investing (EWI), because I don't want the blog to affect my personal and social life.
Why haven't I reached my goals yet, I am still 24 years old? Biggest obstacle have been to be on a small budget as a student, still think I done a great job, which has 22 000 euros already.

Probably will you find out more about me as long as I proceed to write on the blog.

Over and out,

Eighth Wonder Investing