Jerusalem Investing Meetup Group Feb2008

Jerusalem Investing Meetup Group

February Meeting

Putting it all together

Building an investment portfolio

First things first

What is my risk profile?

Risk Tolerance

Risk• how much money is at

stake• how willing am i to deal

with losses• can i stomach volatility• how soon will i need this

money

Return• historical returns vs. actual• desire to outpace inflation• diversification across

assets• diversification across

geography

Risk• how much money is at stake• how willing am i to deal with losses• can i stomach volatility• how soon will i need this money• how far am I from retirement• if market goes down, i would...

Return• historical returns vs. actual• desire to outpace inflation• diversification across assets• diversification across geography• financial goals• how market exposure corresponds to other assets,

career, business

But, need to optimize risk-return

OR, how to get more return for same level of

risk

Remember tax efficiency

need to take taxes into account(ant)

Step 2: Asset Allocation

Both an art and a science

• determine exposure to different asset classes

• how this impacts performance and risk

• domestic vs. international

• stocks vs. bonds

Where to begin?

Endowments

Harvard, Yale publish their yearly reports, useful for asset allocation

Online Research

Most investment banks provide allocation suggestions

International exposure

BUT,

hard to cookie-cutter this

your financial situation is unique

For those looking to be more active

CORE + Satellite

Core + Satellite = Secret Sauce

CoreMajor holdingsRisk managementFunds/ETFs

SatelliteTake some more riskSingle stocksThemes

Last step: Finding the right vehicle

Once you have your allocation, how do you invest in it?

2 ways to go (or some of each)

Single Stocks• few single stocks may

approximate a sector or geography

• leaders in sectors• returns can exceed or

underperform market

Funds/ETFs• pay management fees• diversification affects

returns• hot-hand dynamics• less pressure to pick

individual winners

Which is better?

Like all good questions, it depends...

Active vs. Passive?

Passive vs. Active Investing

Passive• Index Funds• Market returns• Bear market realities• new product

developmento Vanguardo WisdomTree

• new exposure to alternative assets

Active• rare outperformance• hedge fund

discoveries• hot-hand syndrome• new opportunities for

exposure to alternative assets