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Thursday, August 14, 2008

Following Our Covered Calls Investing 'Processes'

I have found that it is very easy to stray from adherence to our own covered calls investing principles and processes. This week I took some time to evaluate if my current Covered Calls Advisor Portfolio (CCAP) is in synch with the principles as described in the various posts this advisor has made on this blog during the past year (reference the 'Covered Calls Processes' link under 'Categories' in the sidebar on the right side of this page).

During my assessment, I discovered that there is one major disconnect -- that is, an area in which the CCAP is dreadfully out-of-synch with my own recommended processes. It is in the area of portfolio diversification and, more specifically, the area of asset allocation. For this advisor, the 'normal weighting' of asset classes is:
Domestic Stocks -- 65%
International Stocks -- 30%
Cash (i.e. Money Markets) -- 5%

The current, more detailed, recommendations in this regard are presented in a prior post as shown here: link

As seen in the current CCAP in the sidebar of this page, only one of the current positions (Petrobras) is in an internationally-based equity; and the International category should normally represent about 30% of the overall portfolio's value.
Suffice it to say that going forward I plan to do a better job of practicing what I preach. Fortunately, since I write primarily near-month covered calls, the Aug08 expiration tomorrow provides me a timely opportunity to get back on track with my asset class diversification as I establish new Sep08 covered calls positions in the CCAP.

So in conclusion, each of us develops our own methods (i.e. 'processes') for how we select and manage our covered calls positions. These processes are (and should always be) a work-in-progress in the sense that we are constantly seeking to refine and improve on our decision-making methodology. But once our 'processes' are established, we should be very diligent in trying to adhere to them as closely as we can!

Question: What's the bottom line??
Answer: Another lesson learned!!

Regards and Godspeed,

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