Investment Journal: Lessons on Asset Allocation

Investment Journal: Lessons on Asset Allocation

At ValueEdge, we are constantly striving to improve our site and content in order to bring greater value to our readers. One of the new changes would be a new category on this site titled – “Investment Journals”, which are lessons learnt through our investment journey. Additionally, in the upcoming weeks, there will be a couple of new changes. Do stay tuned!

Often, investors mainly focus on the research of investments. While there is nothing wrong with focusing on the due diligence process, I realise that asset allocation is just as important. In my opinion, asset allocation is the a key factor in determining the performance of the portfolio.

Many may argue that the performance of the portfolio ultimately lies on how well the investment does, however, how do we deal with the uncertainties that surrounds certain investments? Do we just completely eliminate such investment opportunities? With investments, there will always be uncertainties. Efficient Market Hypothesis does not work well in the short run; hence such imperfect information in the market creates uncertainties and mispricings.

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I believe in order to reduce such uncertainties, it is done through the size of each investments. When Sui Chuan and I decided to enter the Japanese equities market, there were numerous uncertainties surrounding the Japanese equities.

  1. Depreciating Japanese Yen
  2. Lack of English Annual Reports
  3. Poor Corporate Governance

Given such macro-uncertainties revolving round the Japanese market compared to our other 3 core markets, we decided to allocate only a small portion (< 10%) of the investment portfolio to it. One may question, why even enter the Japanese market? The answer is simple, the Japanese market was too cheap to be ignored.

Fast forward today, the situation with the Japanese economy has not only not improved but worsened.

  1. Japan’s negative rates a looming headache for central bank
  2. Negative interest rates – are there any positives?

We are looking at unrealised losses, north of 15% for each Japanese company. In a portfolio of equal sizing, such unrealised losses would have greatly impacted the overall performance of the portfolio. However, with our decision of allocating <10% to the Japanese market, we were able to limit such losses such that gains from the other markets are able to easily cover the losses from the Japanese market.

I developed my passion for investment management especially equity research at a relatively young age. My investment journey began when I was 20, at a point in time where markets were still recovering from the Global Financial Crisis. My portfolio started from money I saved over the past years and through working during the holidays. I was fortunate to have a good friend with common investing mentality to began my journey towards value investing. To date, we still research and invest in companies together, discussing valuations and potential risks of a company. To date, I manage a fund with a value investing style. Positions are decided upon via a bottom-up approach or smart speculation (a term I came up with when buying a stock for quick profit due to a mismatch in prices in the market due to takeovers/selling of a subsidiary or associate). Apart from managing my own portfolio, I enjoy sharing my research with family and friends, seeking their opinions and views towards the stock. Reading Economics in London, I constantly keep up with the financial news in Singapore & Hong Kong. Despite my busy schedule, it has not stopped me from enjoying other aspects of life. I enjoy a variety of activities in whatever free time I may have – endurance running, marathons, traveling, fine dining, whiskey appreciation, fashion. Lastly, I enjoy meeting new people, discussing ideas and gaining new perspectives towards issues in the world.
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