Asset Allocation: The Socratic Model, Part 2

"There are three arts which are concerned with all things:  one which uses, another which makes, and a third which imitates them."  Plato (428-348 BC)

As you may have gathered from "The Socratic Model Part 1", the Socratic investor stays "one step ahead" of the economic cycle rather than attempting to "time the market."  In summary, my Socratic Model is entirely a "self-teaching" asset allocation strategy that is suitable for the investor who is:

• highly aware of their own ignorance,
• aware of the ignorance of others and the resulting effect on overall market behavior;
• experienced (I suggest 10 years) and knowledgeable of investing and macro-economic terminology;
• willing to, as Fu Hsi said over 4,000 years ago, "look foolish in the crowd" (expecting to be behind market averages for up to 12 months out of every five years);
• and, most importantly, passionate about investing to the degree that the significant amount of time required for prudent active management has its own intrinsic, qualitative value, above and beyond quantifiable measure.

If you feel as though you "qualify" for my Socratic Model, here are a few things you can do, assuming you do not already do them:

• Read The Wall Street Journal (paper and/or on-line version) every day without fail.  The Economist also offers good coverage of international economies as well as an outside view of the U.S. economy.  Most "money mags" are a waste of time but I believe The Wall Street Journal's "Smart Money" magazine has at least one useful article in every issue. 
• For print media, in general, pay closer attention to articles deeper inside the issue and lesser attention to articles on the front page except for "contrarian indicators" such as the magazine cover indicator. 
• Always doubt any reports or opinions generated by any entity of the federal government.
• Read financial blogs that doubt macro-economic federal reports, especially those blogs that reveal supportive evidence of their claims.  A good start is The Big Picture or macroblog.
• I also like "blogs of blogs" such as Finance Trends Matter and Abnormal Returns.   
• Also, remember to read the comments on the big blogs.  Comments from readers are often just as insightful and sometimes contrary to the bloggers' post.
• Start your own Blog.  TypePad and Blogspot are the biggest and best Blog resources to get started (I use TypePad).  As a Blogger, you will force yourself to read information, have a well-informed opinion, and provide knowledge that is valuable for your own purposes as well as to others.

Finally, and above all, you should doubt yourself.  As soon as you begin to forget your own ignorance, you're headed for trouble.  I believe that knowledge is power: As our knowledge increases, our power increases and so does the potential for that power to become corruptive (to yourself and others):  Absolute power breeds absolute corruption.  Your strategic actions should be based upon the culmination of your own experience and research and should never be a mirror of something you read or hear...

To paraphrase Plato's quote (above):  Be the one who "uses" and the one who "makes" but not the one who "imitates them..."

TFPAuthor, Kent Thune, is the President and Owner of Atlantic Capital Investments, LLC (ACI), a fee-only, registered investment adviser based in Mount Pleasant, SC, near Charleston.  ACI specializes in retirement, investments, and financial planning.

Comments

[David]

Wise words, Kent. And thanks for the mention!