This week is all about the US Election. The reality TV reference is apt as this remains the world’s largest reality TV show which posts a new season each 4 years. For my views on the US Election, check out last week’s post here.
So, what about the current show of ‘Survivor White house’ vs. how you and I are surviving markets? How have I navigated what has been an annus horribilis in many respects? Well, the first and most important strategy in any long-term investor’s playbook must be diversification. It’s all about not putting your eggs all in one basket.
Some commentators differ and believe that we should all concentrate on our winners and double up on winners as we go along. In my view, this boils down to one’s risk tolerance and what one is seeking to achieve.
I have always viewed investments as long term in nature. It’s about sustainable wealth creation which in time becomes about multi-generational wealth. I have always said that capital is like water and flows to the path of least resistance. However, like water, capital is precious and sustaining a permanent loss of capital is as devastating to one’s long term financial sustainability as going without water is for one’s health.
Diversification allows an investor to build differentiated return sources and income streams which allow one to sustain oneself through dry patches in selected markets. Non-correlated sources of return are key here in ensuring financial longevity. I diversify across asset classes as well as introduce external managers for portions of the portfolio (about ¼ of my portfolio is managed externally) to ensure that someone has my back if my own psychology goes out the window.
I will share a snapshot of what my portfolio looks like right now. This is not advice or a recommendation of what you should do but rather a static view of where my head space is at right now and how that has translated into positioning.
As you can see from the above, I am a very risk averse individual. It wasn’t always so but over the course of this year, my primary goal evolved. Capital preservation coupled with sustainable growth and a reasonable income stream are what I am aiming at. I am not trying to shoot the lights out as this comes with risks which are beyond my current risk tolerance threshold. Lets talk it through.
Investing is about psychology and as a result, to keep my head in the right zone, I need to ensure that I am sleeping well at night without checking the portfolio every 5 minutes. Earlier this year, with the rout in markets following the COVID lockdowns, I re-assessed and decided that I would trim back on some risk budget until I had better line of sight of what COVID means for the world and how we operate. (No, I didn’t sell at the low 😊).
I still don’t ‘know’ but I’m figuring it out and the large cash position is a result of taking some profit out of equity in Q2 and leaving the powder dry. This more than doubled my cash holding but for now, I am looking for opportunities and better line of sight. This will likely come from Equities, either listed or unlisted.
The gold and risk hedge component is a legacy holding. I have always maintained some degree of skepticism toward fiat currencies and this manifests in a portion of ‘Doomsday’ hedge. If the Zombie apocalypse gets us, this part of the portfolio is important and as mentioned above, keeps my head in the game.
I have grouped fixed income and property into the same class. For my purposes, the reason is because the intent behind both for me is income generation. On a look through basis, it may be higher but I have excluded some of the listed REITs I hold from property and have kept it in ‘Global Equity’. I have also excluded property I hold for personal use.
This bring us to the Equity holding. Equities are every investor’s favorite. Just watch CNBC or Bloomberg and you will see that most commentary centers on equity. This misses a large portion of the investment universe but that’s a topic for another day.
At just under 25%, my equity allocation is low. Bear in mind that this number was closer to 45% earlier this year and has been significantly de-risked. I believe in owning good companies with reasonable growth prospects and healthy balance sheets. No rocket science there although it means I may have lost out on some of the exuberance in certain tech stocks this year.
I also maintain a trading portfolio predominantly in equities and FX. This portion of the portfolio represents an unlevered exposure but at times can be levered and may hold long and short positions. It introduces some dynamism to my overall portfolio and is ideally a source of uncorrelated risk and return. When introducing leverage, this may change the overall asset allocation quickly and in a large way. However, the nature of this portion is opportunistic and shorter term.
So that’s the high-level asset allocation I hold. The problem is that a static snapshot may show you where my headspace is at right now but does little to inform you of the journey and what I see ahead. As always I will not give advice. Your financial situation is unique and you should consult a financial advisor before making any changes and investments. In the interest of not turning each blog post into a long soliloquy on what I have done, I will break my journey and thought process into a series under the ‘Investments’ stream so keep reading the blog to stay posted.
Once the clouds clear, I still believe that there are a lot of exciting spaces in the global economy which are only starting to bloom. Think AI, 5G and the Cloud and what that means for how we live and what data will be out there. Think the green economy, clean energy and ESG. These are all areas I am focusing on for current and future opportunities
But every summer has its storms. The clouds will reappear and perhaps we should look at trends like how globalism is receding and rising nationalism. What impact will this have on the blossoming industries we are looking at? For now, let the tribe speak and let’s stay on the island and live to fight another day.
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