The Foundation
Planning: information, investment strategy & portfolio allocation

When building our investment temple, we start with the foundation.  It may not look so great at the beginning but it’s time to start designing, digging and pouring concrete. 

As a reminder, I divide the foundation into 3 parts, each of which are related to the 1st P of Planning: information, investment strategy & portfolio allocation.


1. Information:  it all start’s here.  There is a vast amount of publically available information about all large capitalized companies; and quite a bit about small and medium cap companies as well. 

We live in an age of information.  No longer do the ‘elite’ have better access to information that you do.  If you are skeptical about this, fair enough, but no way is it true (i.e., they having better info than you) over the long-term.  No way.  

I remember back in 1990 when I worked for Goldman Sachs, normal employees had access to all of the company’s investment research.  Every day some nice internal mail lady would drop my company mail into my inbox.  I would eagerly read what was fresh off the investment research press.  This was before the internet had really taken off and so, yes, getting such quality information did seem like an investing advantage.   

Fast forward to today and what I can state unequivocally is that the internet has leveled the playing field.  Simple fact.  Moreover, I believe that the average investment banker not only doesn’t have a significant information advantage over the average small investor, but (as we’ll discover in the small cap section) Wall Street has a distinct disadvantage relative to you and I (at least on what they can act upon).     

A key takeaway here is that you must investigate your investment targets & assumptions thoroughly.  The good news is that it is extremely easy now using the internet as your information source.  And infinitely more balanced as you can, within an hour, get many different perspectives.  In the past (back in 1990, for example) you would have likely (unbeknownst to yourself, of course) adopted the investment bias of the research analyst who had written the company research report.  We are soooo beyond those days it’s almost laughable.  And you are the winner here.

Back to present day, in the corporate world when I’m considering making an investment, I spend a very intense due diligence period becoming an expert (or, at least, as close to it as possible) in order to ensure that the deal is well researched, well structured and incentives of all stakeholders are aligned.

It should be no different with your personal investment plan.  Going back to our example of temple building, can you imagine someone trying to build such a complex structure without any idea of materials, tools, location, alternatives, etc?  It would be madness.  Not to overdramatize the situation but what you plan with respect to your financial future is likely to be one of the most important decisions you will ever make.  It’s that important.

If you haven’t yet checked out the Tools & Supplies webpage, please do so now.


2. Investment strategy:  The second layer of the temple foundation is your investment strategy.  Think of this as your temple’s design.  I’ve touched on some the key aspects in other sections like Tools & Supplies, Why a Temple? & in some of the Myths.  

To summarize:

  • Avoid paying fees if at all possible.  Fees are value destroying and are the single most destructive force counteracting the benefits of long-term compound returns.  
  • I’ve suggested setting up a separate bank account to pay yourself first.  If you don’t have the monthly discipline to allocate some of your income to investing (like me), then set it up to automatically happen.
  • The stock market is the best long-term wealth-creating vehicle available to the small investor.  This will be where you place most – if not all – of your investable cash.
  • This is your money & your future at stake.  Trust no one else to do this as no one else will care about the outcome as much as you.

3. Portfolio allocation (also called asset allocation):  This is analogous to your temple construction plan.  There are numerous asset allocation models available for free on the internet.  Most are based on age & risk-tolerance of the investor.  

In general, the younger the investor (my target audience, for example), the more stocks you should own as a total percentage of assets invested.  Risk tolerance is important as well – are you likely to lose sleep if the stock market crashes?  If you are, I would like to recommend something very difficult – ignore the financial news talking heads and all of the other dire news that sells newspapers and attracts viewers.  You’re in this for the long term so…ignore the daily, weekly, monthly and, yes, even annual stock market fluctuations.  You are more interested in how the market does over decades.  So who cares what happens in 2013…or 2014…or 2015.  You shouldn't care what happens between now and 2045.  Remind yourself of the long-term gains possible in the stock market

To keep your asset allocation decision easy, I am going to take a vastly different approach than the ‘experts’ with their complex models (remember, they are trying to sell you something – I’m not).  As such, I would suggest not using age (assuming your 35 years old or younger) or risk tolerance as the key criteria but rather the time & passion you have in spending time on your portfolio.  Try to decide which of the 3 approaches you would like to take by clicking on each descriptive header below:

Fire & Forget

(automatic pilot)


Occasional Glance

(2-3 times a month)



Hobbyist

(Heh, you like this stuff)


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