Investment decisions should be valuation-based because the price you pay is the biggest determinant of your long term return on investment. All investment decisions are based on probability because no one has the ability to accurately forecast the future. Your best means of increasing the probability of higher than average returns is to make valuation-based investment decisions in your asset allocation and individual investments.
...A tactical asset allocation provides the value investor a dynamic investment allocation strategy that adjusts to favorable and unfavorable valuations. Instead of a strict fixed percentage you have greater flexibility because you can choose from a range based on valuation levels.
...Portfolio rebalancing and weighting are powerful risk management strategies every investor should employ. This is universal for every investor, but especially relevant for the value investor.
...Examples demonstrate that volatility lowers your investment returns. Arithmetic and geometric averages serve different purposes and only geometric averages will accurately reflect compounded investment returns.
Even small differences in investment returns can make huge differences in results over long periods of time. The consequence is investors need to put additional emphasis on the amount of volatility they are willing to accept. It may be that you can increase your long term investment returns by taking LESS risk!
...You can control investment losses by determining your probable maximum loss and choosing an asset allocation that is consistent with your investment philosophy. How much of your investment portfolio can you afford to lose is one of the most critical questions you should ask yourself.
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As founder of the Arbor Investment Planner my passion is to educate and empower the individual investors to manage their own investment portfolio.
The Arbor Investment Planner is a value investment portfolio management guide for those individual investors who choose to manage their own money. I focus on ideas and concepts important to the self directed investor; but put special emphasis on risk management, value investing strategies, and proper asset allocation and diversification.
- Ken Faulkenberry
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