How The Greedy Farmer strategy WORKS For You!

The Greedy Farmer:

Determines the probable direction of the markets and the economy (probable since this is NOT a science) Allowing the Greedy Farmer to optimize the cash and/or fixed income allocation of the portfolios.

Guides according to prudent investment allocation principles

Respects the importance of layering purchases, trimming holdings, selling losers
Respects maximum holding percentages (of any one stock)
Creates diversification across classes, geographies, sectors

Draws from and consolidates the expertise of several analysts, several philosophies.

Finds ways to save and invest more.

this part of the strategy is critical and creates more of your wealth gain than all the other points put together.
an in-person service would put more focus on this (and NO, it is not about budgeting, I have never drafted a personal financial budget, and never will). I hope to offer an in-person service in the future, for people in the local region.

2-4-2 stock price behaviour

There is a risk/benefit profile outlined by some venture capital investors which aptly describes the stock price behaviour that the value, small cap, potentially even the U.S. Growth stocks will exhibit. This is the 2-4-2 performance behaviour.

Of every 8 stocks held in a portfolio for an equivalent period of time, the following results are likely to occur:

2 stocks will be failures and may trend to zero, if not sold
4 stocks will perform well – typically earning 12-15% per annum (total gain including dividends – this is an approximate average for illustration only)
2 stocks will shoot the lights out and may create a gain exceeding 100% (total gain – this is an estimated average gain, for illustration only)

Let’s follow through on a scenario:

Category One $100.00 invested in each of the two failures = $200.00 invested. After a 50% fall in value, the stocks are sold = $100.00 value by the end of the investing period.

Category Two $100.00 invested in each of the four good performers = $400.000 total invested. A 13.5% increase in value over the investing period results in a $454.00 value at the end.

Category Three $100.00 invested in each of the two star performers = $200.00 invested. This turns into $420.00, if one stock earned a 90% return and one a 130% return.

Summary

8 stocks, $100.00 invested in each = $800.00 invested

Total net value at end of period = $100.00 + $454.00 + $420.00 = $974.00

Total net gain over the hypothetical period = 974/800 = 22% gain

A reasonable high end return for worldwide markets NOT corrected for inflation is 7 or 8% according to people such as Warren Buffet although some calculate the long run average of the S&P 500 at 10% per annum.

Whatever number you use, 22% would be VERY respectable. More importantly, understanding the 2-4-2 profile teaches a lot of lessons. The lesson is NOT that you will definitely earn 22%.

2-4-2 lessons

KEY POINT

When you are building your portfolio, take your time, maybe 12-18 months BUT be sure to end up holding 8 or more Small Cap, and/or Value and/or U.S. Growth stocks, if you choose to hold any. Don’t hold two small caps and 6 dividend growth, for example.

Risk is part of investing, if you are not willing to take some losses, you will not reap the gains
Portfolio performance is the key, not a single stock’s performance
Recognizing a mistake allows you to limit your losses greatly, dump the losers when you realize they are a loser!
Ensure you own all 8 of the 2-4-2 portfolio, you don’t know which two shoot the lights out, which two are diving into the muck!
Don’t invest more than 5% of your portfolio in any one stock! Again, you don’t know which stock shoots the lights out; which dives into the muck! (Note: some stocks fly towards the stars and then dive…)

Profitable investing may use some scientific principles but it is NOT a science. Investing is an exercise in improving your odds, diversifying your risk, correcting your mistakes, taking continual leaps of faith. Investing is careful, measured, emotional abandon. 2-4-2 really says a lot.

How The Greedy Farmer strategy WORKS For You!

The Greedy Farmer:

Determines the probable direction of the markets and the economy (probable since this is NOT a science) Allowing the Greedy Farmer to optimize the cash and/or fixed income allocation of the portfolios.

Guides according to prudent investment allocation principles

Draws from and consolidates the expertise of several analysts, several philosophies.

Finds ways to save and invest more.

2-4-2 stock price behaviour

2-4-2 lessons

The Greedy Farmer

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