2016 saw an upgrade in my investment philosophy.
I completely sold off my Unit Trust positions, and subscribed to a completely new portfolio (portfolio = a basket of funds working together):
Portfolio start date around April 2016 and reporting date Jan 2017.
Return On Investment is about 9%, which hit my target perfectly that I think that’s a miracle. Considering there’s Brexit/Trump/1MDB/etc last year, there are many problems that can drag the result down.
On closer analysis, we can see Asia and Global funds performing 15~29% while Malaysian funds performing 0~2%. Therefore the biggest part of the performance comes from overseas diversification.
But does this mean we should go out and buy Asian and Global funds now and sell Malaysian funds? No. As a good Advisor I should educate that the conclusion to draw here is to be diversified in our investments, not market timing. The point is to capture economic growth numbers and to minimise the movement from market noise.
If there’s ever one thing I’ve learnt since the start of my Investment Analysis since 2010 is that market timing and stock picking doesn’t necessarily work and the performance definitely do not match with the effort put in.
At best I’ve made money, but it wasn’t because of my stock picking skill but because of my luck because any stock I pick went up in price at that time. However at worst I’ve lost money because I’ve grown overconfident thinking I could beat the market. I bought stocks studying the company numbers but it did not translate to performance. No matter what people tell you about their secret techniques or Buffett’s ratios or unique trading strategies, the real market is a changing entity that respond and neutralise those short term tactics. When you play a zero sum game of market timing, you win some and you lose some, but you definitely spent a great deal of time and energy in the matter. But when you play the economic numbers game, you can win in the long term and you spent much less time on it.
The above is our firm’s portfolio at report time, which I don’t mind sharing since that is only one part of the value, but the biggest value is in our constant monitoring, rebalancing and restructuring.
It does make my investment job much easier and frees me to discuss on the long term bigger picture.
To me this year the key trend to watch out for is inflation. In recent years, everyone believed deflation will last forever. Deflation meaning inflation will remain low or that our money will actually buy more things in the future. Price of oil, steel, commodities in general was trending downwards. After the Beijing Olympics, it seems like everyone did not buy that much stuff and there’s too much production going on. The world is over capacity and there are more goods than people buying them.
However with Brexit, Trump elected and the coming election problems in Europe, it seems that more and more governments will be forced to overspend to keep their people happy. There might be new untested governing parties which need to open the government wallet to fulfill their election promise regardless of the future consequences. It is a powerful trend of satisfying short term wants vs saving for future needs. The end result could be higher inflation in the future.
This means that income portfolio strategies may not work in the future. As usual the trend will be long term, which gives us time to move out of it as the trend solidifies.
My previous investment reviews:
2014 Stock (n/a – article lost in old wordpress site – Vince Tan if you’re reading this please get to it.)