Janet Schlarbaum Capital Management Information

Submitted by: Janet Schlarbaum

Author: Jason Ng

Having been managing investment portfolios and accounts for the past decade both professionally and personally, me, like an army of other portfolio managers out there, are not only looking for the perfect trading system, but also the perfect way to manage an investment account.

Indeed, there are whole bombardments of theories of risk management and portfolio management out there that it is mind boggling. There are risk management concepts that attempt to govern each investment trade and position sizing based on complex probability calculations and there are even concepts that were born in Las Vegas, claiming what high stake poker gamblers do. The problem with these concepts is that they are mainly mathematical concepts that took the human factor out of the game completely.

Let’s face it, if you have ever managed a portfolio or an investment account, you will know that it is never as simple or left to chance as a game of poker and it is never as mechanical and emotionless as the mathematical calculations claim.

After a decade of thinking along these lines, I realized that these portfolio management concepts are important but there must be something on top of these that must govern the mind that executes these concepts. This “Meta Program” must be the “Operating System” in the mind of the portfolio manager and rule the way the portfolio manager or trader looks at a portfolio or investment account. With such a “Meta Program” in mind, the portfolio manager will be able assess changes in a portfolio or investment account in the right light and to behave in ways that are appropriate to the prevailing situation.

Here I present my personal “Meta Program” called the Portfolio Management Art of War.

Every Investor, Trader, Fund Manager or Portfolio Manager is an Emperor or King of his or her own trading Empire. Your Empire exists in a world that is engulfed and consumed in an eternal warfare. This world is called the Exchange (stock, forex, commodity or whatever exchange you are involved in.).

The boundaries and resources of your Empire are defined by the size of your Fund. Some Kings have bigger territories and some have smaller ones but all are driven by the common need to survive in the Exchange by expanding their territories and boundaries.

As a King, your mandate in the Exchange is to find ways and means to expand your Empire over time. If that cannot be done, you will soon find that you might not be the King of this Empire for very long.

In order to expand one’s territory, one must lead one’s Empire into war against the rest of the Exchange. Some Kings are more aggressive and some, more conservative. Regardless of level of aggression, every King’s resources must be committed in various ways into battle against the Exchange. Every winning battle expands the King’s territory and every losing battle loses part of the Empire and the boundaries shrinks. Some King has a target boundary size but know that as long as you remain a King, you will one day be drawn into battle against the Exchange again. The war in the Exchange is eternal.

In order to battle in the Exchange, every King must have a Strategy. Some splits one’s army up into many squads which fights independently and some engages in a total war against the Exchange with the whole Empire leaving only very little backup. Some organizes one’s army into many functional squads, with some squads fighting more aggressively and some squads fighting more conservatively. This Strategy is called the Portfolio Management System that the King chooses to adopt. Each squad then fights using specific Tactics called Trading Systems.

How a King chooses his Strategy and Tactic depends largely on the part of the Exchange that a King chooses to fight in. Every part of the Exchange (Forex or commodity or equity etc..) has its own unique characteristics and rules of engagement which the King must be thoroughly familiar with.

Every time a King sends forward a squad to do battle in the Exchange by drawing upon his Empire and placing a position in the Exchange, it must always be held in mind that there is no guarantee that you will ever see that brave general that was being sent forth again. If the squad loses, you lose a part of your Empire to the Exchange. Therefore you must take very frequent look at the overall map of your Empire (which should always be pinned up prominently in your war room.) and monitor how far back the Exchange has taken your Empire before thinking about and making your next move. If the squad wins, that general expands your Empire farther into the Exchange. That gives you more resources and more troops to wage your next battle. The King must then decide how these new resources are to be deployed… shall he assign the new troops into his existing squads? Should the King hold the new troops and resources back as backup for future battles? Should the King expand on the number of squads using the new troops? Strategic deployment of these resources could turn the tide of the entire war.

Before a King sends a squad forward, he must first assess the capability of the General that is to lead this assault. This is your Research. If you are highly confident that this General will win the battle, should you give him more troops so that he can claim more territory? If you are slightly less confident of that General, should you cut back on his troop or hold back the assault altogether?

Finally, if your Empire has been compromised and the Exchange has claimed a significant portion of it, is it time you consider a change in Strategy and Tactics? Even if the Exchange has claimed a large portion of your Empire, you might still be able to wage a series of battles so successful that you could probably claim the Empire that you started with and maybe even more, like so many famous Kings and Generals in the world. So, even if your Empire has taken a rough hit, it is not time to surrender yet. You are the King. If you give up, the whole Empire falls.

Article Selected By: Janet Schlarbaum

Author: Ron Piner

I learned something new today. Or maybe I received financial revelation. Regardless of what happened, I am about to share this combination income tax, portfolio building finding with my faithful radio listeners and article readers. “Do what the hell I tell you” takes on a new meaning and is a force to be reckoned with.

I was asked by a financial planner to review a new client’s income tax return for the previous year. In familiarizing my self with the situation, I found that the client has W-2 income, makes contributions to his 401K, owns a home and is paying mortgage interest, and even makes contributions that are non deductible to a traditional individual retirement account (IRA). This taxpayer is married with one child and is in the dreaded alternative minimum tax. What can be done for this poor man and his family?

At first glance, there appeared to be nothing that could be done. This guy has a W-2 and some pretty standard itemized deductions. He is in what I refer to as situational AMT. This is to say that he is in the alternative minimum tax due to his normal situation and not by special transactions. I was beginning to feel that this guy was just destined to stay in the AMT until Congress takes action. Starting to think about Roth IRA’s, I considered electing to forgo the 401K salary deferral and contribute to the Roth IRA instead. Remember, a taxpayer is ineligible to contribute to a Roth IRA is his adjusted gross income (AGI) is in excess of $150,000. However, one can contribute to a Roth IRA if it is part of an employer’s 401K, regardless of one’s AGI. This would increase income tax currently but would be beneficial later as earnings and contributions would not be taxable when withdrawn. This could even save tax money by allowing social security benefits to escape income tax. The problem with our guy is that the income sacrifice today is too great (as he would still be in the AMT). This taxpayer is clearly committed to saving by virtue of the fact that he is willing to make non deductible contributions to a traditional IRA.

What this really means is that this family has its entire savings invested in the stock market. Conventional wisdom tells us that here should be some investment that is not correlated with the stock market and its movements. Here’s where real estate comes into play. Real estate will provide for savings through investment and will provide for diversity away from the stock market. The money that was being contributed to the non deductible IRA can be used to finance the debt service on the real estate. The mortgage interest in this case will qualify as a tax deduction (second home qualification) along with the real estate tax paid. Of course, the hope is the real estate will appreciate over time. It is even possible for the family to make this investment a principal residence in the future (see my article regarding the addition of real estate to one’s portfolio). Here’s the icing on the cake. The additional mortgage interest deduction gets this family out of the alternative minimum tax. My additional thoughts are that the traditional IRA’s be converted to Roth’s as long as the new tax law lasts.

Author: Stephen Todd

If you are looking at alternative investments the one we consider the best has an average gain of 920% over 20 years and has outperformed shares and property with less downside risk.

If you haven’t guessed what it is, read on!

Alternative Investments What Are They?

The term alternative investments typically refers to hedge funds, private equity investing, high return mutual funds and a variety of non-traditional asset investments such as land, timber, art, precious metals and a variety of other collectables.

Alternative Investments - Reduce Risk and Increase Long Term Performance!

The addition of alternative investments to a portfolio of traditional investments can not only enhance overall portfolio returns, but also help reduce downside swings and losses.

Portfolio Diversification

The concept of not putting all your eggs in one basket when investing, and spreading the risk is not a new concept - Harry Markowtiz reduced it to a mathematical formula in 1952.

Today, his work remains a major influence on both asset managers and investors when considering the overall make up of an investment portfolio.

Low Correlation

Markowitz worked on the assumption that all investors what to avoid risk if possible.

He considered how ALL the different investments in a portfolio can be expected to move relative to each other and how this affects the overall risk / return of the portfolio.

The definition of this is “correlation,” and measures how much an investor can expect different investments or asset classes to change in price relative to each other.

Attractive Rates of Return

If you choose the right alternative investment, then it will not only help reduce the risk of your portfolio, but can help provide better overall returns because some investments are correlated and move together. A selection of shares for example, will probably all go down together in a bear market; however, other assets may actually rise.

An investor should therefore combine a number of non-correlated investments to balance the risk and reward of the portfolio.

What is the Best Alternative Investment?

UK land is an ideal alternative investment to add to your portfolio - the reason for this is:

Its historical performance, not only has shown good growth, but downside risk has been relatively low.

Land has also produced solid long term gains regardless of whether stocks, equities and mutual have been rising or falling.

Land Prices Rising Strongly Creates an Investment Opportunity UK land has on average risen in value by 920% over 20 years.

This represents the average, and investors who have been careful in their plot selection have made far greater gains.

The UK is one of the most densely populated countries in Europe and has a rising population, combined with a severe housing shortage.

There is a need for new homes to be built and land developed. You can make significant gains by buying land that could get planning permission in the future.

Alternative Investments are not Just for the Rich!

You don’t need to be wealthy to consider land as one of your alternative investments and even the smallest investor can take advantage of this opportunity.