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March 8, 2016 | Common sense portfolio management

Adrian Mastracci

Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA. My expertise in the investment and financial advisory profession began in 1972. I graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971. I then attended the University of British Columbia, graduating with the MBA in 1972. I have attained the “Discretionary Portfolio Manager” professional designation. I am committed to offering clients the highest standard of personal service by providing prompt, courteous and professional attention. My advice is objective, unbiased and without conflicts of interest. I’m part of a team that delivers comprehensive services and best value in managing client wealth.

“History is a vast early warning system.”
— Norman Cousins, American essayist and publisher, (1915 — 1990)

Investors can be excused for thinking that portfolio management is a modern day creation.
After all, it is commonly referred to as Modern Portfolio Theory (MPT).

Today, professionals and investors have a large basket of MPT tools at their disposal.
Tools to analyze, select, benchmark, monitor and attend to every conceivable nuance.

It is quite easy to get lost in the MPT forest.
The tool chest is so vast that most investors barely scratch the surface of MPT.

In reality, MPT is not modern at all and nobody need get lost in it.
Portfolio theory has a long and rich history, spanning centuries.

Ageless wisdom

The following quotation ought to interest every investor:

“Divide your fortune into four equal parts: stocks, real estate, bonds and gold coins. Be prepared to lose on one of them most of the time. During inflation, you will lose on bonds and win on gold and real estate. During deflation, you lose on real estate and win on bonds. While your stocks will see you through both periods, though in a mixed fashion. Whenever performance differences cause a major imbalance, rebalance your fortunes back to the four equal parts.”

It reads like something published by a modern day scholar of MPT.
In fact, it is attributed to Jacob Fugger the Rich, (1459 — 1525).

Jacob, a German banker, captured the essence of managing wealth.
His ageless wisdom is the summary of portfolio management — both for then and now.

The fundamentals of what every investor ought to follow.
A simple, common sense approach.

Portfolio lessons

What can we learn from Jacob?
Here are some top pointers:

Simplicity — His approach is the spirit of classic simplicity. He minimized risks. He had a diversified asset mix. He monitored results. He tweaked the mix.

Discipline — His discipline served him well. He anticipated losses. A disciplined investor makes better decisions. The situation is the same today.

Methodical — His methodology was logical and void of emotions. Especially in rebalancing, which often involves selling some leaders and buying some laggards.

Timeless — His investment insights have weathered the telling tests of time. Something all investors aspire to achieve. So don’t reinvent the wheels of investing.

Jacob’s wisdom deserves attention from every investor.
His prudent perspective serves as well today as it did five centuries ago.

Investors may have to dig deeper today to design a suitable asset mix.
Equal parts are not always best and there are more asset class choices.

Today’s vast MPT tools make it easier to deal with portfolios, as compared to Jacob’s day.
The pillars of portfolio management contain plenty of ageless, classic, common sense.

Your comments are welcome.

Regards,

Adrian

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March 8th, 2016

Posted In: Adrian Mastracci Blog

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