Wednesday, 8 December 2010

A Broad Investment Strategy

I get quite a few questions about what else I do, more long term, apart from the day trading that you see in the blog.

Let me first say that in these times, I want to be able to convert to cash with the press of a "Close All" button. Anything can still happen as far as I am concerned. I believe in diversification, but of a particular kind.

OK, how is my diversification different? Well firstly, I don't think that passive investment works now. Passive means buying something and letting it sit until you get rich. I think active investment is needed if I want to reduce risk and get a high return. Maybe my diversification isn't really diversification in the normal sense. Wasn't it Warren Buffet who said: "Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing". I diversify between different derivative strategies.

Specifically, I work my investments. Investments are like a garden that needs to be watered every day, looked after, fertilized and harvested. Presently, this is what I do:

1. Discretionary day trading - you see it in the blog
2. FloBot - Flo autotrades a portfolio of futures markets across the spectrum and I'm adding markets regularly
3. Non directional option trading - earning the time decay
4. Directional option trading - both earning time decay and earning by longer term (swing) directional speculation
5. Pairs trading (sometimes called Spread trading) - inter-market spreads, buying one and selling another, both with the underlying and options

Some of the above is computer assisted but all need to be worked, some only a few minutes a day. I can liquidate all my investments with just a few clicks of my mouse. This is very important to me in today's environment.

Active investments earn their keep every day. I can see what I am earning. I can make any adjustments and I am not relying on hope for the investments to pay off.

Today's Gap trade in the Dow Euro 50 showed the benefits of this trade. I could do this one trade and be done for the day. Pity the snow has melted here, so I guess I'll be working all day.


  1. Great post. Very interesting to read how you re-invest your daily profits, something I'm sure others were curious about too.
    Love the quote about diversification.

  2. Just curious, do you stick to derivatives for passive income investing?

    I discretionarily trade futures and equity options which I consider active investments. But I reinvest my proceeds from these investments into more traditional passive income investments such as high grade fixed income (if that exists anymore) and rental properties.

  3. Private Banker, I'm very wary of traditional investments at the moment. If banks can go broke by the dozen then anything is possible. I'm sticking to active investment. Fixed income doesn't bring enough. Simple option strategies seem to have less risk and earn in a month what fixed income brings in a year.