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Tuesday, 25 February 2020

Position Your Portfolio For A Mermaid Invasion

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They're coming! 
I am sure you have all seen headlines of the type “Position your portfolio for [x]”. And x could be anything really - from the Corona Virus, to junk status, to the 4th Industrial Revolution.

I used to devour these types articles. And why not? The experts and market commentators quoted always had solid reasons about why it was a good idea to move some of your portfolio out of this and into that. It always made perfect sense.

And than, after reading the article, my mind would start ticking over. I would start to develop an itch to listen to the advice and do something. These types of articles really leave an impression and make you question aspects of your current investments.

But a few years back, something happened which totally changed my perception around these types of articles, as well as the experts and market commentators which contribute to them.

My interest in finance and investing has resulted in me being on a few investing related email lists. And so one day I received a pretty interesting email from a respected fund manager. It was right before the US election in 2017, and the latest opinion polls were in - Hillary Clinton was going to pip Donald Trump and become the next US president.

The email went on to say that the fund manager was “positioning their portfolio” for a Hillary Clinton victory. It went on to use some of the usual big and impressive sounding words the investment industry likes to throw around. I mean this is an expert after all and they must know what they are doing. Everything must be under control.

But then, shock and horror, we all know how the elections actually went – Trump wins!

The same fund manager then sent another communication about how they had now gone and “positioned” their portfolio for Trumps presidency. It would now be significantly more defensive, because Trump as president was expected to be bad for the US markets. So they decided on less investing into the US markets and more money into safe stuff like Cash and Bonds. More big words, and more solid reasoning – thank goodness this highly qualified, highly experienced fund manager is on top of things and knows how to “position” their portfolio.

Except, within a week, the US market was up. The next month it was up too. The next year it was up, and in fact it hasn’t stopped going up since then. But thanks to all this “positioning” the investment manager lost out on a lot of this growth.

I quickly realised that not even the experts really know how to “position” a portfolio.

And there's another problem with “positioning” your portfolio – not only was the investment manager wrong about their first position, but when the position changed, the positioning they took to fix their previous position, left them in a bit of an awkward position!

And this leaves the investor in the bent over position!

If they had just followed one of the basic principles of investing – invest for the long term, ignore short term noise, and it’s the time in the market and not the timing of the market - they would have achieved a significantly better outcome!

Now I am not saying that investment managers and financial experts are stupid – quite the contrary actually; these people are highly qualified, vastly experienced, and super smart. And maybe next time they will get it right. It just seems like this whole “positioning” your portfolio business is more about luck and less about skill or knowledge?

And something else I have learnt (often the hard way) over the years, is that doing nothing is almost always the best action to take. Once you have settled on an investment strategy, it is important that you stick to it.

Remember you have chosen your investments for a reason, and if your time-frame is long, and your portfolio is well diversified across geographies, sectors, asset classes and currencies, then your portfolio will never ever (ever ever) need to be “positioned” for anything, and that includes the latest media fueled end of the world crisis.

A well-diversified portfolio will be able to ride out political shenanigans, hiring and firing of finance ministers, economic turmoil and any other uncertainty the world can throw at you – that is the whole point of being well diversified!

History has shown that if you stay the course, keep investing, and avoid “positioning“ your portfolio every time you read a headline about the next crisis (there’s always one isn’t there?) then your portfolio can survive just about anything – including 2 World Wars, Great Depressions, Oil Crises, Dot Com Busts and Global Financial Crises.

So, how do you position your portfolio for junk status? The same way you position your portfolio for investment grade status – diversify across geographies, sectors, asset classes and currencies, and then just have patience.

And how do you position your portfolio for a low growth environment? The same way you position your portfolio for a high growth environment – diversify across geographies, sectors, asset classes and currencies, and then just have patience.

And finally, to address the headline of this article, how do you position your portfolio for a mermaid invasion?

Move everything into Bitcoin (obviously!)




Till next time, Stay Stealthy!
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