The best strategy to allocate capital for high-net-worth individuals should target the investment in diversified non-correlated assets that promise safety of principle and favorable risk-adjusted returns. The allocation of capital should be thought of in terms of a group operation where capital is spread across undervalued securities of different asset classes that in aggregate minimize the risk of being wrong, while also maximizing the potential of being right, thereby creating a favorable risk adjusted return profile based on the average result of the portfolio of securities.
For the long-term investor this entails a diversified mix of the best quality, undervalued dividend paying common stocks, undervalued real estate single-family rental properties, and cash equivalent securities. Our strategy focuses on the investment in the best quality undervalued enterprises/real estate that are predictable, durable and inherently stable with a proven track record of being able to withstand adversity while generating reliable increases in free cash flow over long periods of time.
Furthermore, applying our fundamental principle of “quality over quantity/certainty over frequency” to the selection of undervalued securities which means to sacrifice the more frequent, less certain, higher risk, less probable favorable outcomes in favor of the less frequent, more certain, lower risk, highly probable favorable outcomes. Selecting a smaller group of only the best quality undervalued securities with the rejection of securities of inferior grade that do not meet our proprietary minimum standards of safety.
If you are a high-net-worth individual interested in building an investment portfolio for effectively managing risk, contact The Practical Contrarian.