A Leveraged View On My Asset Allocation

As of last Friday on June 9, 2006, my networth & portfolio looks like this:

Category

Net Value

Control/Leverage

My Company

18.4%

80.3%

My Home

20.9%

29.8%

Stocks/Cash

60.7%

60.7%

For the explanation of why the percentage numbers don’t sum up to 100% in the column of Control/Leverage, please read my post A Different Percentile Look on Leverages of Your Networth. Obviously, due to the stock options that I hold in my company, my networth can still be dramatically affected by the up & down of my company stock. When the general market falls like this time, the negative contribution on my networth will be the biggest from my company holdings. Vice versa, when the general market rallies, the positive contribution will be the biggest too. However, if you look at the percentage from the value column, I have sufficient assets from other sources so that I don’t need to be forced into liquidating my company holdings. From the leverage column, I’m still overall long in this market, even when you consider my commodity holdings as a negative holding against the general market. In fact, one of the reasons that my own investment is so focused in commodity sector is to partially serve as a hedge against my company holdings. Since commodity market is less correlated to the general stock market, more often than not, when my investments do well, my company holdings don’t do well, and vice versa. Of course, synchronous rising has happened before, and synchronous falling like this time happens too. But my overall portfolio benefits from this diversification. I have a very distinct advantage compared to other, of not needing to invest in the general market to benefit from the rising trends of the general market (well, if there is any).

To maintain a good diversification, I have sticked to a strict discipline of not buying ANY high-tech related stocks so that I don’t increase my further exposure in that area because of my stock options. Also, due to my real estate holdings, I don’t buy ANY financial or real estate related stocks either. Any buys (if at all) in high-tech, financial, or real estate stocks will be very short term trades in probably less than a month. I will not hesitate to liquidate those positions if the trades don’t work out, to maintain my exposure discipline. The sectors that I focus on for my personal investment are energy, commodity, healthcare/pharmaceutical, and sometimes consumer staples.

Due to recent market turmoil, I have also decided that going forward, I may even initiate short positions to directly hedge my real estate and company holdings. Unfortunately, any such hedging can only be done in a very limited basis, due to the amount of money that will be required to initiate a full short position.

MillionaireMan
 

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