Investment strategy

so funnily enough, almost everyone I know in finance who trades in their PA pretty much more or less YOLO’s it. no diligence, no model, nothing like that. I personally have never picked up a pen or excel sheet before making PA investments. only time I’ll have ever done real work is sometimes when I’ll do an investment pitch for my job and I think it’s a great trade will I put a big position on in my PA if we don’t do it in the fund.

Use a pretty detailed model, run multiple regressions and sensitivities, then delete it all and lever up on $SUCC calls

If you need to ask, just buy an index fund. Seriously. The checklist is so long, you are guaranteed to get the short stick.

I've heard of guys who have fixated on one or two trades and despite some losses, with actual diligence have netted 20-30K. Not a lot in the big picture but when we were analysts and they made compliance-cleared trades with that kind of profit, you bet we celebrated

I have about 20 names in my PA equal-weighted that I handpicked but with very light diligence. Starts with a quant screen that I developed for work (ROIC + Growth heavy), eliminates Utilities, Financials, Materials, Energy, REITs up front as I have no interest in taking on the risks that come with those sectors without actual diligence. Then I arbitrarily narrow that down by eliminating companies with question marks or blemishes in their historicals or KPI’s. Once I have a more manageable list of companies that look great on paper I will just go through each just to see what they actually do (maybe a quick google search or 30 seconds on their website). Eliminate most of them in this step as I am looking for major secular trends that will bail me out if I miss something company-specific, and also looking for industries that are intuitively attractive. This gets me down to about 30-50 companies where I want to know them at a company level. So this might be a quick buzz of the business section of the K, some sell side (Morningstar particularly good for understanding the actual business rather than the most recent Q). Here I’m also looking for businesses that are intuitively competitively advantaged or their competitive advantages are clear from this light diligence. Then I’ll do a very high level back of the envelope valuation to make sure there is an actual path to decent returns given that most of the companies by this point are trading at statistical premiums. Pick 20 of them trying to make sure that I don’t have 50% of the port in one sector (skews mostly towards health care and tech). As of right now, I’m trying to buy companies that are so good that I don’t have to worry about them short-term and any premium I pay on valuation will be amortized down over my long time horizon. I review these names maybe once a year and go through the whole screening process again to see if anything new pops up. This whole process takes me maybe 1-2 days once a year. Rebalance once a year but I only ever buy more of the lighter-weight names, I never sell the over-weights for tax efficiency. This has worked pretty well for me but I will admit that the lack of diligence makes volatility a little more uncomfortable since I don’t have the requisite knowledge to know what to do with it (buy more or sell). Equal weighting mitigates this as I only really need to be right more than I am wrong for things to work out. It’s on my to-do list to do some actual work on these names but it’s not a high priority right now given the success that this strategy has had for me. I’d imagine that if there was a big cyclical value rally or a spike in rates that my return premium vs the SP would narrow quite a bit, but I’m not out here trying to shorter-term make macro bets.