Shawn Burns is Solve the Riddle

  REVIEWING PORTFOLIO CONSTRUCTION-WITH A LITTLE HELP FROM MY FRIEND – GEMINI Portfolio Construction (PC) is a different skill from security selection. Security selection is the identification of a security and weighing up whether the risk/return makes sense. PC is more multi-faceted. There is the security selection question, then the sizing question and then the interplay of that security with the rest of the portfolio, like factor or theme exposure. Unconscious bets in the portfolio can be dangerous and usually surface after the damage is done. That is, where unidentified correlations exist, they can bite severely and unexpectedly. Then there is the completely separate question of appropriately sizing stocks, factors and themes to optimise returns; that is a complex task in itself. Admittedly, I've always struggled with diversification for diversification's sake. If an asset is just there because it is different, that doesn’t make much sense to me. I want assets or stocks tha...

  FUNDAMENTAL RISK ANALYSIS OF PORTFOLIO One of the reasons I am comfortable holding such a large percentage of my wealth in risk assets is that those companies are conservatively financed, and the underlying businesses are sound and will not fail if there is a large external shock. Here I look at the businesses, not the expected share price reactions, which could, and probably will, be significantly disassociated from the underlying business, at least for a while, if stress and uncertainty hit the market. With the bond market again under some weakness, with yields rising and areas of uncertainty in geopolitics and high worldwide debt levels, financial stability is worth another look. The first part of the analysis examines the traditional measures of debt. Of course, these measures of risk analysis are closely tied to the inherent volatility and riskiness of the underlying businesses. That is, what are appropriate debt levels for some businesses are not appropriate for other...