Joshua Kennon is a Managing Director of Kennon-Green & Co., a private asset management firm specializing in global value investing for affluent and high net worth individuals, families, and institutions. Nothing in this article or on this site, which is Mr. Kennon's personal blog, is intended to be, nor should it be construed as, investment advice, a recommendation, or an offer to buy or sell a security or securities. Investing can result in losses, sometimes significant losses. Prior to taking any action involving your finances or portfolio, you should consult with your own qualified professional advisor(s), such as an investment advisor, tax specialist, and/or attorney, who can help you consider your unique needs, circumstances, risk tolerance, and other relevant factors.

Portfolio Weightings and Construction

Pay Attention to the Weightings of Your Individual Holdings When Constructing a Portfolio

One of the things that worries me from a risk management perspective is investors who don’t know what they own or their actual, real portfolio weightings. Sometimes, I’ll hear new investors say, “I own stocks” or “I own mutual funds” but neither is an answer. Those aren’t the relevant details. The real question: “In which enterprises, on what terms, and at what price has the money been invested, laid out, and exchanged?”. Much of everything else is a smokescreen serving to obfuscate reality. It’s risk-adjusted reward we’re after; reward measured in after-tax, net-of-inflation real purchasing power.

How Joe Campbell Found Himself $106,445.56 In Debt to His Broker in a Matter of Minutes Because He Didn’t Understand the Risks of Shorting Stock

One of the major themes running through my body of work, both on this site and at Investing for Beginners, can be summed up in the statement, “Know your risks”. I hammer it home all the time; “risk-adjusted return”, talk about remote-probability events, explaining how much of wealth building is learning to “tilt probabilities in [your] favor”, admonishment to never invest in something you don’t fully understand and couldn’t explain to a Kindergartener in a couple of sentences. Consider this real-life tragedy a morality tale that can help you protect your own family.