How The Philosopher Portfolio Works

Most portfolios break because of risk, long before the picks matter. One position grows too big. A stock keeps falling and the owner keeps buying. So I built this portfolio around risk first, and the picks come second.

Here are the rules. I keep a few settings to myself, and every change to these rules will come with a note to you.

The tickers below are only examples, picked to show each rule at work.

1. Every block carries the same risk

The portfolio has five blocks. Four of them hold stocks, each with its own style:

• Trend leaders: companies already leading the market.

• Pullbacks: strong stocks taking a breather.

• Breakouts: stocks that just left a long, quiet range. I buy them on the first dip.

• Catalysts: stocks moved by fresh news, like a strong quarter.

Each style holds three or four stocks.

The fifth block holds the hedges: long Treasury bonds, gold and commodities. When stocks drop, they tend to go their own way.

Each block carries the same share of risk. Risk here means how much a holding swings from day to day. So a calm bond fund gets more dollars than a jumpy chip stock. For example, with the prices of October 23, the rules would put 8% in TLT and 3.4% in TSM. Their risk is about the same. Every quarter I measure the risk again and rebalance.

2. I only buy stocks that are already rising

A stock must trade above its 200-day average, the average price of the last 200 trading days, about ten months. That average must be rising too. When a stock I own closes below it, I sell the next morning.

I also skip stocks that have run far above that average. After a huge run, the next buyer is often the last one.

3. I buy inside the normal range, away from its top

Every stock has a normal price range over the past month. I buy when the price sits inside that range, away from its top.

When the price drops below the range, the stock is still falling and nobody knows where it stops. I wait. I buy once it climbs back inside.

Take TSM as an example. On October 16 it closed below its range. On October 19 it climbed back in. That close is the signal, and the buy goes in at the next morning's open.

I also wait when a company reports earnings in the next few days. One bad report can erase a month of gains overnight.

4. Every position has its exit before I buy it

Each stock comes with a stop price, set on the day I decide to buy. If the stock closes below it, I sell the next morning, with no debate. I can raise a stop as the price climbs. I never lower it.

Each stock also comes with two sentences: why I own it, and what would make me sell before the stop. You see both in the app.

5. Winners grow in steps

I start each position small. If it rises, I add to it, twice at most, and only while its trend holds. No single stock goes above 8% of the portfolio.

6. When a stock runs too hot, I sell a third

When the price shoots above the top of its normal range and then turns down, I sell a third of the position. The rest keeps running.

Take CPAY as an example. It closed above its range on Thursday, October 22, and turned down on Friday. That is the signal to sell a third at the next open.

7. Cash is a tool

I follow a few market gauges that I tested over many years. When several of them show euphoria at once, I hold more cash. When the market capitulates, I put the cash to work.

In the first weeks, cash stays high while the stocks wait for their buy zone. That is part of the plan.

What you get as a paid subscriber

• The live portfolio in the app. Every position, its weight, its stop and the reason I own it, updated every night: app.thephilosopherinvestor.com/models

• A Portfolio Note each time the portfolio changes. What I bought, what I sold, and why.

The rules decide how much to buy and when to sell. I choose the stocks, and every note shows you why.