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Advice for 30yr old with high risk tolerance
Bvlp
Posted: 17 May 2018 12:52:43(UTC)
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Good afternoon,

I have been reading this forum for a few weeks, some great contributors.

I am 30 and my wife is 27, I have just made partner in a consultancy firm and she is a junior doctor. We have spent the last 7/8 years paying off student/MBA loans, saving for a house deposit/wedding and generally having a good time...

However we now find ourselves with very low fixed out-goings and no debt except a fixed 10yr mortgage at 2.6%. This means we can put aside roughly £2,500 to £4,000 per month in investments/savings (above her NHS pension and my employer pension). All this had led me to now become very intesterested in how to deploy this money!

I was stupid over the last seven years as I did not take full employer match and ignored where the contributions were invested. Therefore I have a portfolio as follows:

£16,842 Prudential UK Smaller Companies
£18,314 L & G Emerging Markets Index
£17,586 L & G Global index (ex UK)
£6,475 Vanguard global small cap index

I also have an emergency fund in NS&I premium bonds. The first three funds are spread across two pension accounts, however from August will all be in an III Sipp with full flexibility of where to invest. The Vanguard is held in a Vanguard ISA.

Now, the reason I am looking for advice is my goal is not to make a steady incremental gain so I can comfortably retire at 60, I'm pretty confident we will achieve that with both our employer only pensions. My goal is to take a risk and perhaps be able to retire (or become a part time advisor) at 45 - 55, and my wife work part time from 50 to 65/68. So essentially I want to take a substantial risk with these funds so I have the chance to live like a king from 45, not a certainty I will live like on from 68 or whenever I will be allowed to retire in the future!

However, I have the self awareness to know I am my own worst enemy. I have an extreme tolerance for risk, combined with a high degree of decisiveness. These traits have served me well but I recognise can also ruin me. Combined with this I am awful at attention to detail and will float into and out of big ideas, changing more frequently than the weather. Indeed, since I began reasesrching investing in September last year I have barrelled into and of at least 5 different strategies (from individual stock picking, to momentum, to vanillia indexing). I get bored easy as you can see.

So what I am looking for is an investment portfolio and approach ideas which will achieve the following:

- potential to beat the market, accepting I can lose it all
- does not require detailed analysis on my part
- is an interesting enough ride to keep me engaged
- mechacincal enough that I avoid the pitfalls of my personality traits but requires some active decision making so I can at least prove to myself I'm an idiot or a genius (I suspect the former)
- may enable me to retire at 45 to 50, but does not have to guarantee this!
- generally avoids picking individual stocks for unless they are in my area of specialism (defence, military, cyber security)

So, any ideas and thoughts?

Cheers for reading,

Bvlp

3 users thanked Bvlp for this post.
Mr Helpful on 17/05/2018(UTC), George C on 17/05/2018(UTC), Tim D on 18/05/2018(UTC)
philip gosling
Posted: 17 May 2018 13:41:17(UTC)
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The problem is to make the most of stock market opportunities you need to invest in individual stocks but as you can see on this forum reading what many are doing is detailed research across wide spectrum of the market. They take the time and have developed the knowledge and experience to do this - you seem to be saying this route is not for you.

The next route is active fund/etf s - again reading on here will give you some steers as to some funds/investment trusts that are and have been doing well - no guarantee for the future .

Lastly and not a bad idea if you can settle for normal retirement at 65 is Global Trackers buy and hold until retirement. I am now gradually moving into ETFs like Vanguard Life-strategy 100% equity but then I have retired now and so I am reducing risk.

I would start by reading some books on investments and I am sure you'll get a few recommendations for good reads shortly . In meantime look back over past 3 months of posts on the forum and you'll get a good feeling for contributors' value for you .
1 user thanked philip gosling for this post.
Bvlp on 19/05/2018(UTC)
King Lodos
Posted: 17 May 2018 13:48:00(UTC)
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There are two basic ways to increase returns: leverage and concentration.

The easiest way to add leverage is to put the lot into private equity Investment Trusts .. I like Harbourvest (HVPE), and that could make a good bedrock investment – but there are more concentrated things like 3i, Princess Private Equity, Pantheon, etc. Just buy all the good ones.

That's what college endowment funds like Yale do: shove a third in Private Equity, and also load up on Emerging Markets .. Both should make outsized gains if held long enough; but both can do horribly over short-to-medium-term.


The alternative would be to hold a portfolio of 6 or so really great companies .. I know you don't want to get into stock picking, but personally I'd do this too .. There is nothing to do when it comes to holding Private Equity and EM – you'll get bored – and timing/momentum with them is horrible .. What holding individual stocks may do is help you adopt a more conservative attitude over time .. (and you could start out looking at the stocks something like the Lindsell Train Investment Trust or Fundsmith hold)

It's good to have a high tolerance for risk, but by the time you reach 45, you will want to have ironed that out .. A lot of traders with that attitude get rich; but not all of them stay rich .. Sociopaths have this problem – killer traders, but that optimism and confidence also tends to get them wiped out.


You might know this – the size of a return required to offset a loss .. A 50% loss requires a 100% return to get even, and it gets a lot worse from there .. Investors who don't become conservative over time are gamblers .. While paying in £3-4,000/month will protect you for a good few years, at a certain point that will just be a rounding error .. At THAT point, a 75-80% loss could cause you serious problems:

http://www.etfpros.com/wp-content/uploads/2013/10/GAINSNEEDED.png
5 users thanked King Lodos for this post.
Sara G on 17/05/2018(UTC), Tim D on 18/05/2018(UTC), Alan Selwood on 18/05/2018(UTC), Bvlp on 19/05/2018(UTC), Derek Clark on 25/05/2018(UTC)
Mr Helpful
Posted: 17 May 2018 14:25:15(UTC)
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Bvlp;62440 wrote:
So what I am looking for is an investment portfolio and approach ideas which will achieve the following:
1. - potential to beat the market, accepting I can lose it all
2. - does not require detailed analysis on my part
3. - is an interesting enough ride to keep me engaged
4. - mechanical enough that I avoid the pitfalls of my personality traits but requires some active decision making so I can at least prove to myself I'm an idiot or a genius (I suspect the former)
5. - may enable me to retire at 45 to 50, but does not have to guarantee this!
6. - generally avoids picking individual stocks for unless they are in my area of specialism (defence, military, cyber security)
So, any ideas and thoughts?

Thanks for setting posters such a refreshing challenge.
Intial thoughts :-
1. It is quite diffficult to lose it all.
Figures from the US (Siegel's Constant) suggest long-term stock returns above inflation circa 7%. So something pretty daft has to be done with the tables so tilted in the investor's favour.
2. and 3. seem to conflict. Or is it work to be avoided while volatility enjoyed?
4. Some kind of Investment Plan needed.
5. Quite possible with some valuation, momentum, or other driven 'market timing'.
Avoid the drops, harvest the surges? (if only!)
6. Meets first rule of investing (diversify, diversify, diversify) in one fell swoop. One fairly short book 'Investment Trusts' by John Baron may be a starting point.
SMT is a favourite "growth" Investment Trust with many posters here, but there is a chance its' day in the sun might falter before then resuming in the next strong bull market.
1 user thanked Mr Helpful for this post.
Bvlp on 19/05/2018(UTC)
Catch The Pigeon
Posted: 17 May 2018 14:41:00(UTC)
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Firstly, if you want proper advice, speak to a Financial Adviser. This forum is for guidance only.

I personally wouldn't get involved with stock picking. For a high risk portfolio, I would consider 3/4 investment trusts and funds.

My personal preference would be:

Scottish Mortgage Investment Trust
Baillie Gifford Shin Nippon
Vanguard Life Strategy 100
The Biotech Growth Trust

You need to think about access requirements. If you want to retire at 45, an ISA will be more valuable than a pension.
4 users thanked Catch The Pigeon for this post.
john_r on 17/05/2018(UTC), Tim D on 18/05/2018(UTC), william barnes on 19/05/2018(UTC), Bvlp on 19/05/2018(UTC)
Tom Mozy
Posted: 17 May 2018 14:48:21(UTC)
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Your current portfolio seems to fit your risk tolerance already.

As KL points out. Rule 1 dont lose money, Rule 2, dont forget rule 1.

There was a man in the states that earnt no more than £20k per annum, but saved 15% of is wages every month. Over 40 years he had more than 1 million in retirement.

Forget the risky strategy. Just buy quality every month.

Everything else will take care of itself.
6 users thanked Tom Mozy for this post.
King Lodos on 17/05/2018(UTC), Keith Cobby on 17/05/2018(UTC), Inderpal Singh Khalsa on 18/05/2018(UTC), william barnes on 19/05/2018(UTC), Bvlp on 19/05/2018(UTC), Derek Clark on 25/05/2018(UTC)
George C
Posted: 17 May 2018 15:47:06(UTC)
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I was particularly interested in this topic as you are not in a massively different situation to me, with very similar goals. I'm a couple of years older, with maybe slightly less to invest and I and joined the forum a few months back, since setting up a SIPP and ISA.

I had a similar approach in that i wanted to make decisions myself - almost to create a hobby out of this too as i found it interesting. However, i quickly realised i was a bit out of my depth. I had a decent chunk to invest (at this stage in my life) and didn't want to learn too much on the job and make costly errors. I was quite close to just picking low cost trackers, an approach i think would be fine actually. I wanted a little more risk for the potential of higher returns though.

Fortunately, i actually have a family friend who is a financial advisor and gave me some formal advice. Really great company that typically work with richer individuals, and I didn't have to pay for this. However, with the costs/fees of getting advice, i would probably have decided to just make my own decisions. I don't quite see value at this early stage, maybe when i have a bigger total pot the advice might be worth paying for (to protect it better maybe).

So i took their advice for my SIPP, and what I decided to do is pick a few funds myself in my ISA. I decide small business offered higher risk/returns, and went for a UK and a Japanese small business fund. I have some kept as cash, either to invest soon if there is a big crash, or to gradually select my own stocks - this will just be small part of my portfolio for the interest/learning element I want in there, and i can grow that over time if i build my knowledge sufficiently. I also picked LT Global as my final choice to see if a recognised find manager picking selected stocks can beat me!

Be interested to hear how you get on.
2 users thanked George C for this post.
Catch The Pigeon on 17/05/2018(UTC), Bvlp on 19/05/2018(UTC)
Julianw
Posted: 17 May 2018 18:21:43(UTC)
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Some friendly advice from someone who has achieved your goal.

Investing is about been methodical, boring and come up with a plan that has a high probability of success.

If in doubt, choose simplicity.

Highest risk portfolio is 100% globally diversified equity. You do not not need any more.

With respect to your goal:

If you and your wife just max out your annual ISA allowance £3333per month, £40000 per year (you should put part of the contribution £4000 each towards a LISA where you get £1000 government top up)

Assuming 5% real return, long term return of the stock market, over 20 years, you will have £1358000 in today's money.

If you take 4% income, give you £54320 per year.

Job done!

Vangard global all cap index will do the job.

Use Iweb or Interactive investor for your ISA (Iweb is cheaper but no automatic investment)
and AJ Bell for your LISA

Automate as much as you can to stop you interfering! You should concentrate your energy on your career.
4 users thanked Julianw for this post.
King Lodos on 17/05/2018(UTC), Tim D on 18/05/2018(UTC), william barnes on 19/05/2018(UTC), Bvlp on 19/05/2018(UTC)
King Lodos
Posted: 17 May 2018 19:57:27(UTC)
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The index advice would be by far the most likely to work out well.

If you're going to put that much money away, it's not worth gambling on high risk investments, when you should really just focus on getting to £1,000,000 by your 40s (maybe 30s if markets stay cheery), being that you're in the position to do that.

As mentioned, a reliable £1,000,000 means even NS&I bonds will be paying you a worthwhile income .. And really the amount you save is going to have the biggest impact .. Rather than shoot for a sketchy 12% return, just save a little more and go with the Vanguard .. Get as much of it in a Vanguard ISA as possible, and you'll have quite a tax-free income

1 user thanked King Lodos for this post.
Bvlp on 19/05/2018(UTC)
Law Man
Posted: 17 May 2018 20:35:26(UTC)
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You demonstrate insight into your own approach to investment. Your biggest potential enemy is chasing different ideas, getting 'bored' and chasing something else.

Other posters give good suggestions: put you £4,000 per month or so into diversified index trackers and then leave them alone (until 10 years before you intend to retire).

If you want the challenge and intellectual interest of buying your own shares, open a separate account with, say, £20,000, and see how you get on with that.

Before starting, devote scrotes of hours to learning, and choose a specific technique. I like Mar Minervini's books: not just for his particular technique, but for his general rules, consistency and rigid discipline.
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King Lodos on 17/05/2018(UTC), Mr Helpful on 18/05/2018(UTC), Aminatidi on 18/05/2018(UTC), Alan Selwood on 18/05/2018(UTC), Bvlp on 19/05/2018(UTC)
King Lodos
Posted: 17 May 2018 20:49:41(UTC)
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What I really like about Trading 212 – as a platform for someone to put 5%(?) of their portfolio into stock picking or trading ('fun money') – is that with 10 free trades a month, you really can start small.

The real key with active trading/investing though is playing defence .. Whether that's getting out of bad trades early, or buying things with a margin of safety in valuations, the work is really keeping hold of what you've got.

Making money is just what happens by staying in the game long enough .. When markets/stocks are going up, that's when you don't have to do anything – those are the holidays
Julianw
Posted: 18 May 2018 07:35:36(UTC)
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A small entertainment account is not a bad idea. Luck play a part in performance, particularly short term. The danger is that you start of well and think you are a genius. The biggest danger to your investment portfolio/investment goal is the person in the mirror!

Never under estimate the cost of loss and time value of money. Both gains and loss compound over time.

I still remember starting 22+ years ago with a technology heavy portfolio. Loss £15000 in the tech crash. Early and expensive lesson. (over the long term, a cheap lesson?)

Assuming 8% nominal return, 5% real return + 3% inflation, what I expect to get in a simple global stock index fund, 21 years, the loss in today's money £76000.
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TJL
Posted: 18 May 2018 08:19:50(UTC)
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kWIKSAVE
Posted: 18 May 2018 08:28:24(UTC)
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I woud forget the 100% high risk allocation ..... it could give nightmares.

Suggest 50% funds and 50% solid FTSE 100 Companies that have been around for years such as Diageo, Unilever and Prudential.

Monthly savings into Lindsell Train Global Equity, Rathbone Global Opportunites, Liontrust Special Situations ,Invesco Perpetual Asian choosing Accumulation units where offered with lump sums of £5,000 each into individual equities.

Maximise ISA contributions.
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Pip Giddins on 18/05/2018(UTC), Bvlp on 19/05/2018(UTC)
AJW
Posted: 18 May 2018 10:11:39(UTC)
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Venezuelan bonds
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Aminatidi on 18/05/2018(UTC), uhm on 18/05/2018(UTC)
Tom Mozy
Posted: 18 May 2018 10:59:32(UTC)
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AJW;62485 wrote:
Venezuelan bonds


Could be good - they have just taken over the kelloggs factory after they left the country. You will be paid back in corn flakes.

Ahhh the socialist ideal!
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william barnes on 19/05/2018(UTC)
King Lodos
Posted: 18 May 2018 14:51:46(UTC)
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I'd have to say that's a very misguided article.

Over 5 years, the difference between a 0.5% fee and a 1.5% fee is negligible – what does best is going to come down to almost everything but fees.

But over 50 years, that fee difference could be half your total investment .. while there'll have been many different winning sectors and management styles over that period .. and THAT's why fees matter .. They're a constant, while all the things that make particular funds do well over 5 years aren't
TJL
Posted: 18 May 2018 14:58:24(UTC)
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I wasn't agreeing or disagreeing, I just thought it might be of interest as the issue is topical.
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King Lodos on 18/05/2018(UTC)
Alan Selwood
Posted: 18 May 2018 19:23:06(UTC)
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Given the stated 'investor attitude' towards the investment of the money that is available, I'm sure that sheer curiosity will lead to some specific shares being selected.

The key to making it all work, though, is not to go bull-at-a-gate, double-or-bust.

Why not devote a small percentage of the total to your own selection, while keeping the bulk in a moderate number of funds or investment trusts that are rated as 'core holdings' by firms such as Morningstar?

When picking the small number of individual shares, it could be desirable to do what Giles Hargreave does in his extremely successful fund Marlborough Special Situations : buy small amounts in what you think are going to be goers, then prune out those that don't live up to expectations, while adding to those that have legs. (You will discover also that Giles has a very large number of shares, because he doesn't want to jeopardise his total results by taking risks with what may not work out).

So, a worked example (not recommendations, but just an example):

£100,000 to invest for the long term, with fairly high risk being tolerated. But not to the extent of serious risk through treating it all too much like gambling on the horses.

Tranche 1 (Core, no thought).
£30,000 in a global tracker such as a Vanguard one.

Tranche 2 (Core, a bit of thought, but no real need to monitor more than once or twice a year, or 3-5 years if feeling bored)
£20,000 in Fundsmith Equity Fund (T or I class, accumulation units), to try to capture growth from companies in the developed world (USA & Western Europe) that are already profitable, market-leading ones with a good chance of warding off competition from those that would like to steal their customers.
OR
The same £20,000 in Lindsell Train Global Equity Fund, with much the same emphasis.

Tranche 3 (more adventurous, and perhaps worth monitoring every few months to check that the general outlook for these more specialised markets is favourable rather than negative - but leave the managers to deal with the detail)
£10,000 in Baillie Gifford Shin Nippon investment trust to give exposure to good smaller Japanese companies. Note: if selling at a premium to asset value, buy the fund rather than the investment trust version.
£5,000 in India Capital Growth for growth from Indian companies
£5,000 in Vietnam Enterprise Investment Fund [code VEIL] for a small amount of exposure to what seems to be a fast-growing market at the moment.
£5,000 in TR European Growth to give exposure to interesting European smaller companies.
£5,000 in [GEIGER], which invests in a small number of Uranium-producing companies (the uranium market looks as if it will soon have more demand and less supply than has been the case in the last 10 years).

This leaves £20,000 to spread around some small, potentially high growth companies that could be brilliant or awful - this is the 'fun' or 'try this at home in small amounts' part of the portfolio!

Tranche 4:
Monitor weekly, set alerts for updates on trading and results.

£1,000 in each of these (at your own risk!):

Abcam
AB Dynamics
Ashtead
Blue Prism
Burford Capital
Fevertree
NMC
Phoenix Spree Deutchland
Restore
U and I [code UANDI]

Keep back £10,00 in cash.

If any of these falls by more than 10%, prune it out, and reinvest in either one of the above that is doing well, or select from the reserve list below:

Anpario
Bioquell
Bioventix
Breedon
Hutchison China Meditech
Kape Technologies
RWS
SCISYS
Somero
Tarsus
TREATT
Tristel

If anything makes significant gains in its operations and profitability, or results are particularly better than expected, and prices rise significantly in response, let the first few days of fervour go by, then use part of the £10,000 cash to increase the stakes in them - while keeping a spread, and not going all-in, in case better opportunities still come along.

And remember - this thread is to give ideas to digest, think about and develop your own decisions from. None of the investment trusts, funds or individual equities mentioned should be taken as a recommendation or endorsement.
The writer may have, or may have had, holdings in one or more of these assets, or may be considering buying one or more of them. This is independent of your own decisions!

Good fortune!

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Bvlp
Posted: 19 May 2018 09:11:48(UTC)
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Wow! Firstly, thank you to everyone who took the time to make suggestions, many of them really resonated with me in terms of overall strategy.

I completely understand the logic of those that suggest putting it all in an index tracker and leaving it to work its magic. However, my belief in psychology trumps my belief if statistical averages. If I took this approach I would not invest as much overall as the ‘boring’ nature of the investment would lead me to spend much of the extra cash on fast cars, expensive wine and whatever home improvement the wife wants… it would also probably lead to me doing something rash when In the future.

At the moment I am like a child who has seen an open flame for the first time, I have been told not to touch it, but look how bright it is! I guess the trick is making sure my whole arm does not catch on fire, which is where I will deploy the strategies suggested here.

To that end, here is my first proposal at an investment strategy and some further questions, I would greatly appreciate any suggestions, criticisms or general musing:

As a note, the following will apply to my current portfolio and on-going contributions, I have assumed this could be at least a ten-year strategy given my horizon.

45% into index trackers, with a tilted weighting towards small caps and emerging markets. This will mainly be achieved through my employer pension where ‘set and forget’ is much easier as the money is taken as salary sacrifice which I don’t really notice.

However, with index trackers, am I missing something obvious? If market cap is determined by those making active decisions on where to allocate their capital, doesn’t the rise of index trackers make the market cap %’s increasingly ‘dumb’, i.e. money which has no opinion on the future of the individual business itself. Also, doesn’t new money into index trackers amplify this ‘dumbness’ by further increasing the price of those with the highest market cap? As index tracking rises and highly paid fund managers start losing their jobs, will we all just be throwing money at the market based on a declining number of active decision makers and an increasing number of people who have no opinion? Won’t this eventually reach breaking point? I assume this view is flawed, grateful is somehow could explain how it's flawed?

Rules:

No more than 50% of this pot can be tilted away from the FTSE all market
No more than 30% toward any single tilt

2. 35% into actively managed funds and investment trusts (a combination of Alan’s tranche 2&3). I don’t know which yet, but I am interested and content enough to do the research as it does not require getting into the detail of individual shareholdings.

Does anyone have suggestions on the min/max number of funds and any other sensible rules? I don’t want to be too concentrated but at the same time don’t want to find myself owning 30 funds in ten years time.

3. 20% into individual shares or cash, depending on my sentiment and opportunities I see.

However, even though I know its not advisable to concentrate holdings into a narrow industry sector, this I what I plan to do. I read ‘One up on Wall Street’ and was committed to the idea of needing an ‘edge’. I firmly believe I cannot outperform the professionals in most industry sectors. However, for a living, I have a deep knowledge of the Defence and Cyber Security Market. I can instantly see through the PR and Management spin, and assess the long-term viability and strategy of businesses in this sector. I can also avoid the duds, which in the Cyber Security market at the moment I am amazed by the amount of Private Equity, Venture Capital and now even retail investors money that is flowing into companies which are no more than an algorithm, slogan, sales script and a bunch of 25 year olds willing to work for not much more than free beer and ping pong tables. It's certain to end in tears.

Again, any suggestions on the min/max number of holdings and rules on concentration?

Cheers,

Bvlp
2 users thanked Bvlp for this post.
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