Ch8. Stock Investing — Portfolio Strategy by Investor Type

Model Portfolios by Investor Type

Beginner (0–2 years): Index Core

Allocation:

• 70% VOO (S&P 500)
• 15% VEA (International Developed)
• 15% BND (US Bonds)

Rules:

• Monthly DCA (dollar-cost average)
• No individual stock picking
• Annual rebalancing only
• 5+ year minimum holding horizon

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Intermediate (2–5 years): Core + Satellite

Core (70%):

• S&P 500 ETF (VOO or VTI)
• International ETF (VEA + VWO)

Satellite (30%):

• 5–10 individual stocks based on fundamental analysis
• Each position ≤ 5% of total portfolio

Selection criteria:

• ROE > 15% consistently
• Positive free cash flow
• Competitive moat identifiable
• Reasonable valuation (PEG < 2, P/E below sector average)

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Advanced (5+ years): Multi-Strategy

Allocation:

• US Growth (AI/Tech/Healthcare): 30%
• US Value + Dividends: 25%
• International Developed: 15%
• Emerging Markets: 10%
• Bonds/Alternatives: 10%
• Cash (opportunistic): 10%

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10 Rules of Successful Investing

1. Not investing is the biggest risk — inflation erodes uninvested cash
2. Invest only in what you understand — ignorance is never compensated by luck
3. Diversification is required — no single position >20% of portfolio
4. Stop-losses protect capital — discipline over ego
5. Long holding periods beat frequent trading — transaction costs and taxes compound
6. Market timing is nearly impossible — DCA removes the need to time
7. Emotions are the market’s most consistent enemy — rules over feelings
8. Compound interest rewards patience exponentially — every year earlier matters
9. By the time news breaks, the price has already moved — don’t chase
10. Investing is a marathon, not a sprint — think in decades

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Investment Buy Checklist

Before buying any stock or ETF:

For ETFs:

• Do I understand what this ETF tracks?
• Is the expense ratio ≤ 0.20%?
• Does it fit my asset allocation target?

For Individual Stocks:

• Can I describe this company’s business in 2 sentences?
• Has the company grown earnings for 3+ consecutive years?
• Is the valuation reasonable relative to growth (PEG, P/E)?
• What could make me wrong? (Identify bear case)
• What is my stop-loss price?
• What is my target price (exit plan)?

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Sell Checklist

When to sell:

• Original investment thesis is no longer valid
• Fundamentals have materially deteriorated
• Stock has reached target price (partial trim)
• Stop-loss triggered (discipline over hope)
• Better opportunity identified and portfolio needs to fund it
• Rebalancing requires trimming overweight positions

Stock Market Investing Guide series complete! May your portfolio grow with wisdom and patience.