 Good day fellow investors! Investing in stocks means that you end up with a portfolio because holding only one stock is a little bit too risky because you never know what can happen to one company. So today we're going to discuss my perfect portfolio, how am I building my model portfolio now in 2018 and five key things to watch when building such a portfolio, especially in this financial environment. The questions we are looking to give an answer to are do you have a good investment portfolio? Do you know what is portfolio management? Do you know how to manage your portfolio? Does it allow to take advantage of the opportunities that might come in today's financial environment and is your portfolio hedged, at least in a way? So as we often discuss stocks here I really think that an overview of what we do on this channel would be given by a portfolio discussion and even a series of videos on portfolio management as there is so much to learn about that. So this is a start I think every Tuesday I'll make one video so please subscribe to see more of that. So let's dig into the matter. Now a great stock market portfolio is a portfolio that will lead to satisfying investment returns no matter what happens in the economic environment in the financial environment and with stocks. So as we are now in a Goldilocks economic period we have had eight years of economic expansion, unemployment is at record lows, things are looking so good and interest rates are really, really low. However let me quote Ray Dalio here. Central bankers never get it right because it's not a perfect balance that's why we have recessions and according to Dalio we have a 60% recession chance in the world in the US prior to the next presidential elections. So he sees a lot of imbalances that are creating themselves in the financial environment that mean that the risks are rising and that's something we have to prepare our portfolio for. Further very interesting how Donald Trump is already preparing to put the blame on the Fed for an eventual recession and he says that tightening now hurts all that we have done and that coming due and we are raising rates really so he's already saying if the economy goes down the Fed is to blame not me a smart guy. Further not just financial world is changing technology the way we live is changing at a very very very extremely fast pace so our portfolio for the next decade has to be ready also to implement all those technological changes that affect our lives. Developing technology lowers the price of everything and that's why we can keep low interest rates but there is always a question okay some assets really are exploding like real estate and stocks while others are imploding like for example food prices so we have to see how to go about that is each sector and then find the balance for the portfolio for the risk reward exposure. New interesting technologies like 5G electric vehicles sharing data development data storing cloud computing whatever some things might go bad but some things might really go right in the next decade and also you want to see how to expose your portfolio to that so let's now in this short introduction we'll go into detail with other videos but let's now go to the five things that we have to watch when managing a portfolio and then how I see the best structure for a portfolio in 2018. This exercise will help you understand the risk reward of what you're doing of your investments and how to get the best returns in the long term for the lowest risk that's the key when investing. Number one value investing has beaten any other kind of investing over the past 90 years for 94% of the cases I made a video about that so that means that if you invest with value-based perspective you can find exposure to all those new technologies you can find protection to all those risks by buying things that have value be it stocks with the price to book value around or below one be it stocks or fixed assets that grow in value during inflation so you have to see how can you best position your portfolio to still be exposed to the positive trends but also have value that protect you from what might go wrong if you look enough across the world it is possible to beat such a portfolio. Now the second key is portfolio valuation which means that your long-term returns depend on the earnings the stock you have in your portfolio generate the higher the price to earnings ratio of your portfolio the lower will be your earnings returns the price earnings ratio of the SAP 500 is at 24.3 that implies a 4.11 earnings yield historically price earnings ratio have been lower around 15 and this is why stock market returns were higher than 6% in the last century I estimate future returns to be around 4% so if you want better than 4 you have to look elsewhere to create a portfolio. Number three portfolio risk management is key stocks are very volatile so it's not smart to chase stocks to buy just because it might go up you have to always see everything from a risk perspective what might go wrong and then when you find little things that might go wrong in comparison to what is the positive what might go right then you invest so you're looking for a positive risk reward situation and when you have a diversified portfolio with a lot of positive risk reward situations you have a great portfolio and you sleep well no matter what happens and now let's dig into my portfolio my view of the portfolio how I'm creating a portfolio over time this is not something you do in a day in a week in a month you take a few years to build a great portfolio in the current environment which is flexible if the environment changes so I will be long things I will be hedged I will see what are the best exposures and then invest at the right time or at what I think the right time is let's see so first is great businesses with great assets with great value across let's say 20% developed markets 8% Latin America because there is a lot of volatility there 8% China a lot of risk due to the high debt in China 8% Asia including Russia again political risk in Russia but if the risk is low and the potential in relation to the rewards then I'm happy to invest 8% various hedges that might be options depending on their price gold hedges I love gold miners but I balance that in a portfolio 8% should be could be real estate if we find great purchases 15% and this point in time should go to commodities copper nickel that might explode electric vehicles food that is cheap and then 25% waiting for in cash waiting for opportunities to take advantage of what the market offers and all these portfolio exposures are then again okay if the risk is high I might have zero of this segment in my portfolio if the risk is low I might reach the 8% for example for China or go even to 12 if it's really good risk reward scenario as I said it all boils down number five to risk reward in your portfolio if you invest in 10 things like I have seen here and let's say that five let's say one is really a bust four goes nowhere and five of the portfolio exposures are good for example I get it on commodities some commodities and those do really well and my investments do really well there and if I look at the portfolio look what's going on manage carefully and take advantage of the whole trend then just those few portfolio exposures will give me great returns over the complete portfolio over the long term so it's important to okay prepare a portfolio over time but also manage a portfolio over time to see okay what's the risk reward what's going on in the economy and how can I better take advantage of what's going on so just an example of portfolio management hedges portfolio hedges are usually extremely cheap when there is the highest value in them so options a year ago were really cheap because the volatility was low but at that point in time nobody expected higher volatility and perhaps we'll again see such an environment later so when those options will be very cheap we might dig into in buying them when nobody wants to touch gold you look at gold to buy them because then it's the best hedge if you look at from a hedge and not a speculation investment so a lot of things to combine will be digging deeper I'll make the following videos in this series in this playlist so please subscribe so we'll look at portfolio in relation to economic situation risk reward of investing at the moment likelihood of what might happen commodities countries sectors portfolio weights hedges currencies developed and emerging markets etc etc the key is to have proper portfolio exposure understand the risk reward of each portfolio component be patient when buying wait for the stock to come to you when it hits your right value and perfect portfolio exposure portfolio weight and then just be patient to find all those best investments do the research over the long term because you're building something for the next decade two decades and if you're a long-term investor you reap the best returns because you take advantage of all the positives that lead to great investment returns so thank you for watching I'm looking forward to your ideas to your comments what do you think how is your portfolio structured so please share with that with us in the comments and I'll see you in the next video