About one year ago, I fired my longtime money manager. To paraphrase Warren Buffett, I discovered belatedly that now that the tide had gone out, my money manager was swimming naked!

 

In a nutshell, my portfolio contained far too many cyclical companies that suffered from unpalatable debt loads.

 

What was my mindset during this annus horribilis, or "terrible year"? I wanted to manage a significant portion of my assets and have veto power over the equity proposals of my money managers.

 

Here is what I did:

 

Step 1: I updated my wife of close to 40 years fully about our financial situation. I made certain that we were on the same page.

 

Step 2: I chose to invest about 40 percent of our assets myself. The remainder was divided between two excellent money managers.

 

Both money managers make investment selections in primarily blue-chip companies based on internal research, and they emphasize long-term capital gains

 

One manager focuses on international equities.

 

The other focuses on foreign companies that have almost no exposure to the American economy.

 

Step 3: I needed to evaluate my own professional capabilities.

 

On the one hand, I had little direct knowledge of equities because I spent my career in fixed income.

 

On the other hand, I possessed some advantages.

 

First of all, I understood balance sheet risks better than many investors and stock analysts. Therefore, I only chose blue-chip companies that were cash-flow positive or enjoyed full access to the capital markets such as Procter & Gamble, Johnson & Johnson and Wal-Mart. Many research reports errantly focus solely on the potential earnings of companies rather than credit risks.

 

Secondly, I established a realistic time frame for restoring my net worth -- five years.

 

Thirdly, finding the best stocks requires due diligence. Fortunately, I have always loved the securities market. Some of my fondest childhood memories were sharing with my dad his investment ideas. I consider spending 20 to 30 hours a week reading a variety of first-rate publications a labor of love. In addition to a wide variety and number of daily newspapers and weekly business publications, I found www.yahoofinance.com and www.morningstar.com to be wonderful resources. I receive investment advice from the Motley Fool, Barons and Forbes. My favorite resource is my nephew, who is a senior research analyst for a major hedge fund.

 

Step 4: I established certain guidelines. First, I believe that:

 

1. People should concentrate their bets to become wealthy;

 

2. People should diversify to preserve assets. Therefore, with the exception of Berkshire Hathaway, I have not allocated more than 3 percent to any position. My overweighting of Berkshire Hathaway reflects my confidence in Warren Buffett. Berkshire Hathaway possesses a composite of excellent operating companies and investments.

 

The downside of my strategy is no sizzle. On the other hand, to paraphrase Bank of America CEO Ken Lewis, in 2008 I had all the fun that I can stand. Secondly, I will only invest in companies whose operations I understand, such as AT&T, CVS and General Mills. Third of all, I want to own blue-chip companies that enjoy franchise domination of their markets. Microsoft, Clorox and Walgreen met these criteria. Lastly, I chose almost exclusively companies that not only paid dividends but historically raised their payouts. My dividend earnings approach 3 percent.

 

How would I grade myself? After one year, I have not drowned. While I might look a little silly being fully dressed at the beach, nobody can say that I am swimming naked.

 

I strongly feel that being captain of my own fate was the right decision. Every day I repeat, "It is not how much I can afford to win, but rather how much can I afford to lose."