Thursday, September 12, 2013

Strategy Update 12 Sep 2013

Hey there peeps,

After lots of thinking and lots of reading, combined with lots of time wasted surfing the internet, I have to say that honestly I'm pretty confused by a lot of things. I'm just gonna vomit everything that is on my mind out here right now. It's not gonna be pretty or coherent, but it's all I got.

Firstly, reading ZH and a few other alternative news is making me feel awfully bearish. Whenever I read market outlooks posted by banks or funds, I see a lot of them being very optimistic about certain areas, rather than overall pessimistic about everything.

My personal feeling on the looks of everything is as follows:
The US is "growing" based on Fed QE, it isn't really improving or progressing. Socially, they are in a rut, there's a huge income gap, and large disincentives to work. Politically, they are divided. The Democrats and Republicans are fighting out silly things and only looking out for #1. I think their debt issue is a huge one that has to be logically figured out soon. Idk about you guys, but I see that the US has 2 major problems. First, they economy is running on lies and it's on the verge of a meltdown, which is gonna bring down everyone else. Secondly, their debt issue becomes a global issue, because it destablises a ton of currencies.

Personally, I've totally avoided the US markets based on the fact that they have a silly dividend withholding policy, plus over the last 10 years, their currency has pretty much lost 30% against the SGD. Hypothetically, if I had invested in the US over the last 10 years, whatever gains I had would take a 30% haircut. Not to mention the capital as well. A lot of currencies are looking that way. I'll elaborate more later.

Europe seems to be in a perpetual sideway motion. The stronger countries seem to be digging themselves out, while the weaker ones are just holding them down by the ankles. Their currency problem is pretty much the same problem as the US, just a bit better. I don't foresee large growth from them, just a rather sluggish general upward trend, then is linked very thinly to the US as well. I think if 1 tanks, both tanks.

Emerging Markets honestly looks great to me. Lots of people have said that they are attractive at the prices that they are at now, but a lot of proof has also gone to show that the reason for their massive growth has been the inflows from other countries towards their development. QE tapering has hit the EM's hard, and I'm really just waiting for the dust to settle down before I decide to dip my toes in.

Well, that's all said and done about geography, so now what? Where do we go from here?

After lots of research and reading, I've concluded that as attractive as passive investing looks to me, I really don't have the capital to diversify adequately. Without a large capital, I am unable to purchase ETFs at an optimal price, plus, I am unable to breakdown my allocations more and micromanage my portfolio. An ETF portfolio construction of just 3 ETFs (World, EM and Bonds) would take up between 18-27k! Plus, it would be equally weighted, and extremely hard to rebalance. I am honestly not too excited about that prospect of being so lumpy. On the other hand, funds have a relatively much lower start up rate, and it is much more manageable and easy to rebalance, with more accuracy as well.

As an ideal portfolio for the future, my portfolio would consist of:
1) Actively managed bond funds
2) Equity distinctively split between US, Europe, Asia ex Japan and EMs
3) Global dividend stocks
4) Global real estate between US, UK, Eurozone, Asia ex Japan and EMs

I am rather fond of the portfolio strategy of Core and Satellites, however, I would like to create a matrix tables which I can easily follow. It would have different scenarios like interest rates, inflation, asset bubbles, recessions and stuff like that. If I can readily have scenario planning like that, I would feel much more prepared and safer knowing that regardless of whatever market situation I'm facing, I would be able to stay largely invested and still make returns.

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