For those who have read my book, The Kickass Entrepreneur’s Guide to Investing (which you can download for free), you will know that I have a simple investment philosophy that I recommend all business owners follow.

The philosophy is along the lines of allocating 1/3 of your assets to income-producing real estate, 1/3 to cash (and bonds), and 1/3 to the value of your business equity.

I go into great detail in my book and explain how this allocation strategy, when back-tested, has proven itself over many years and will provide for a diversified allocation and steady stream of dividend-producing income.

What I never explained in my book was how I came to follow this strategy.

People learn from their mistakes. Sometimes those mistakes are painful, and although we might be warned by others, the FOMO (fear of missing out) sometimes guides our actions.

I started my business in 1991. By early ‘97 and into ‘98 and ‘99, I had put my business profits mostly into the stock market, in particular, technology stocks. At the time, I had approximately $300,000 in the stock market with very little in alternate assets, other than my business and the equity in my home.

Since I was in the technology industry, I felt that I understood technology at a better level than the average investor. I began to believe that I was smarter than the average technology investor. I believed that I was invincible.

I rode the tech market up during the late ‘90s and kept doubling down on my tech stock portfolio, and although I didn’t allocate all of my cash into technology stocks, it did represent a large percentage of my overall wealth.

My stock portfolio was a license to print money. The stock values increased quickly, and the larger my returns, the more determined I was to gamble all of my excess cash back into the tech market.

Some of my larger holdings included Microsoft, Intel, Amazon, Nortel, Cisco, Oracle, and other stocks like Pets.com, and eToys.com.

Cisco, for example, shot up to $58 from $10 in April 2000, and quickly dropped to $12 in 2002. Oracle went from $8 up to $50, and then back to $8. Nortel, Pets.com, and eToys.com all went bankrupt, although Nortel not until many years later.

By the end of the technology stock carnage, my portfolio shrank by more than 65%, and my $300,000 in stocks was worth less than $110,000.

I learned my lesson.

My own business took a hit when I closed one of my own divisions, Response Interactive, which was a dot-com tech-based business.

All of my assets were more or less correlated. The stock market crashed, and so did my business.

Lesson Learned

I committed to the concept of slow and steady, along with proper diversification across multiple asset classes. I decided that I wouldn’t risk my cash again by investing in the stock market but would reinvest back into my own business, would take a more conservative approach to growth, and would ultimately, and when I was ready, invest into real estate.

As somewhat of an aside, I held my beaten stock portfolio in a separate account and mostly ignored the stocks for many years. I didn’t buy too many stocks during the 2000 to 2015 time period and chose to invest into real estate, with the exception of purchasing Google, Netflix, Apple, and a few other tech stocks. By 2015, stocks represented a small percentage of my overall wealth.

It would come as a huge surprise many years later when some of the stocks I bought in the ‘90s, which I still own today, had gone up by remarkable levels. In particular, Amazon, which I bought at $15, went up to $105 by April of 1999 and then bottomed at $7. It hovered in the $30 to $100 range for almost 10 years. It now trades at $1,843!

I never sold Amazon. I didn’t sell any of the tech stocks.

Some have done very poorly over the last 20 years. Some have gone bankrupt, and some have done extremely well.

My crappy portfolio, which I put aside, too frustrated to look at for almost 15 years, is now quite sizeable.

I didn’t have the stomach to withstand another 65% haircut on my portfolio, so I spent the next 15 years focusing on my business and changed my investment philosophy, which you can read about in my book.

I sold the majority share of my business in 2017.

I needed to find a new investment strategy once I divested from my business as my 1/3 strategy was completely askew.

Over the course of the last 18 months, and with a better understanding of my financial objectives, I have slowly crafted a new asset allocation which seems to be working.

My New Strategy:

I still own my apartment buildings. That hasn’t changed. The buildings produce a healthy and steady income stream.

I decided that my portfolio needs to withstand the next inevitable market correction. I can’t handle another crash in my cash position, so investing in all tech stocks, or the quick home runs, isn’t something I am comfortable with. Neither is having a high concentration of assets in the overall stock market.

I still own a minority share in the company I started. It represents a small percentage of my overall portfolio, and I am prepared to hold that position for an indefinite period of time.

In late 2017 and into 2018, I moved my cash position into the bond ETF market, which traded sideways for about a year, even after the 3 to 4% yield.

Then I decided to move most of my bond portfolio into GICs (guaranteed certificates, think T-bills), which I did in early November at rates ranging from 3.4% to 3.75% for 5 years.

My Strategy is now centered around the following 8 concepts:

#1. I  don’t want to go back to work again, full-time, ever. If I do go back to work, it’s because I want to, not because I have to, so even if sh*t hits the fan, the assets held in my personal portfolio need to be safe enough to last me for a lifetime.

#2. I want diversified assets across multiple sectors, asset classes, and currencies. I don’t want all my assets in the Canadian or US dollar. If the CDN or USD crashes, for whatever reason, I don’t want all of my eggs to be in one currency basket, and overall, the portfolio should have some uncorrelated assets.

#3. My portfolio should be optimized for tax, i.e., own the right securities in my retirement accounts vs corporate vs personal holdings. I am aware of which assets should reside where.

#4. My portfolio should produce a steady stream of dividend income, so I need to be cognizant of the dividend yield and not buy poor securities just because of the yield. I need to design a stock portfolio along the SWAN (sleep well at night) concept and own dividend aristocrat and dividend king stocks. I take the philosophy that I am buying companies, not stocks. I am buying attractive businesses for the long-term, not playing the stock market.

#5. Although inflation has been in the 2% range for many years, should it go up considerably, I need my assets to move in-line with inflation, in other words, be inflation protected.

#6. I need SWAN type fixed income securities. GICs, T-Bills.

#7. I am looking for modest inflation and currency-protected 4 to 5% yearly returns so I don’t need to stretch for yields or large capital gains. As a result, my stock holdings are comprised mostly of value based dividend stocks rather than momentum based stocks.

#8. I should review and organize my personal affairs so that when I am gone (we all have our time), my heirs won’t have to pull their hair out figuring out what I have and why I’ve done the things that I’ve done. I will be very clear about my philosophy so that the instructions can be clearly followed and understood.

So how have I designed my portfolio?

I will cover that in the next few week’s and subsequent blog posts, so stay tuned. I intend to cover each of the 8 concepts in much greater detail. If you don’t want to miss next week’s post, you can subscribe here.

If you liked this post, you might also enjoy this one: Do you Have the Most Important Trait Required to Become a Millionaire?

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