Purple Trader Shares His Portfolio Methodology

INVSTR Insights

Ever wondered what a trader’s investment portfolio would look like? You don't have to look much further INVSTRs. One of Purple Groups' senior traders, JD Breytenbach, shares insights into selecting and constructing an investment portfolio.

JD, a senior trader at Purple Group, has been involved in the financial markets since 2012 and has experience across financial services operations, asset management, and alternative investment.

Let’s hear from the man himself and his selection process:

Investment and trading methodology

Before I get into my ideal portfolio, I think it is more prudent to discuss my investment and trading methodology, which has four main criteria.

1. Be contrarian
2. Be conservative
3. Be diversified
4. Cash is also a position

I am innately contrarian at the core, and this is because I have been burnt enough times following the "textbook" trades and other self-proclaimed experts on TV and social media.

My favorite quote on the markets comes from the father of system trading Ed Seykota. “The markets are the same now as they were five to ten years ago because they keep changing – just like they did then.”

What is a sure bet and works in 2021 probably won't work in 2022; the only constant, is change?

This is where diversification, conservatism, and cash come in.

Most traders and investors are also horribly wrong irrespective of whether they are following friends being steered by their own emotions and a litany of other issues which causes them to be buying highs and selling lows. To be clear, I have done my fair share, and if anyone tells you they didn't or haven't, don't put any weight in their opinion as they are a charlatan.

To summarize what being contrarian is about, being contrarian is when the whole world is talking about buying ABC, and you find it very difficult to. When everyone is innately pessimistic, you are also looking for a bullish argument.

Before getting into any investment, there must always be a bullish, bearish, or neutral argument in your analysis. If something is 100% bullish, you haven't done enough research, or you don't understand your topic well enough, there is no such thing as a slam dunk.

You can also be 100% correct, but one thing you never foresaw could ultimately put a spanner in the works. To quote Mark Twain - "What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.”

Being Active or Passive?

I debated with a friend of mine a few weeks ago and coined the phrase with him, being passively active and actively passive.

Passively active – Not trying to be involved in the market every day just to be involved; not every day there is an opportunity to make money.

Actively passive – Waiting for the right time to invest for the long term with cash being a position it should be deployed when markets sell off more than 15% in leading markets or at least in tranches (parts). Cost averaging invest small amounts monthly to keep purchasing ETFs or unit trusts to build up some wealth.

Diversification also goes far further than just buying an index but looking at the globe; we are spoilt for choice in this day and age by being able to invest in market-leading companies across the world as well as a plethora of ETF's.

Indexes are geared to go up by picking the crème de la crème of each market, but there is no reason why it should always go up and not consolidate.

I will show more of my ideal investing portfolio below but an example being actively passive and passively active, i.e., buying the strongest ETFs' when the market sells off as well as playing a thematic idea, i.e., Oil Stocks that have been beaten up the most as they could bounce back harder.

My ideal investment portfolio

I would spread my investment portfolio across the following six strategies:

1. Passive – Run debit orders each month and keep investing into the market; cost averaging is a winner in bad times.
2. Active – Investing with an active manager or running your stockbroking account, playing on themes.
3. Passive – Buying dips with spare cash when the markets sell off more than 15%
4. Preference shares – Looking to grow your cash pile with the dividends received from the preference shares, ignoring the capital depreciation
5. Debt – Look at ETF’s that give higher yield as well as unit trusts that focus on the income/debt side of the market
6. Cash – keep saving and adding to this pile with dividends received, etc

Managing Risk

Quite simple, never invest more than you are willing to lose, or that could sabotage your entire portfolio; even if you wipe out 15% of your entire portfolio, you need a 17.6% return to bring yourself back square.

Words of wisdom from JD,

To quote Ryan Reynolds's character In the movie The Hitman's Bodyguard, "Boring is always best", also is so true when it comes to the markets.

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JD Breytenbach

INVSTR