Sunday, July 27th, 2008 Update

I haven't been able to post anything in over two weeks. I was on vacation for awhile and then I was really busy after getting back home. The last two weeks in the market have been really volatile. Unfortunately, my portfolio has not fared as well as I would like. I have always said that I don't mind for my portfolio to be up less than the overall market on the up days, as long as it's not down more than the overall market on the down days. Lately, that's exactly what I've seen all too often. It has pointed out to me that I've got too much risk in my portfolio and it's time to step back and not only look at the individual stocks that I own, but my overall investing philosophy. Fortunately, I've had a lot of time to think since my last post. I've come to the conclusion, that I need to do three things 1) reduce the number of stocks in the portfolio 2) make the Warren Buffet stocks a greater percentage of the portfolio 3) be more aggressive in writing covered calls and naked puts to generate current income. Right now, I own sixteen stocks with six of them in the Buffet portfolio and ten in the Cramer portfolio. I will start to liquidate most of the stocks in the Cramer portfolio as I feel the timing is right and use this money to invest in the Buffet stocks. New purchases of Buffet stocks will be done in combination with the sale of covered calls. Since these stocks are not nearly as volatile as the overall market, the idea is that I'll be able to bring in some cash by using the new shares as collateral. This upside is that I lower my cost basis on shares of stocks that I like and the downside is that I get called out and don't realize all of the gains that I could have. Since I will not sell covered calls against my entire position of any one stock, I will always have some shares available to participate in any rally. I will also use naked puts as a way to either generate income (put finishes out of the money) or allow myself to buy into a stock at a good price. I think this new strategy will help cut down on the volatility in the portfolio as well as help me achieve the goal of my investing philosophy: To build a portfolio that 1) generates long-term capital appreciation and current income 2) outperforms in a down market even though it may lag in an up market.