Over the past decades, it was easy to manage wealth. A textbook 60/40 portfolio, exposure to the S&P 500 Index and Treasury bonds, was an effortless winner. That is why there was an overwhelming opinion that investment was easy. But things have changed, the wreckage left by Covid-19, combined with a cold war between the world’s two largest economies, is the closest we’ve come to World War III.
The U.S. had the world’s best stock market, and bonds, but they are no longer safe since Donald Trump’s chaotic policymaking era. To be fair, Trump’s strategy was effective, but it carried great risks. But that is him. As I mentioned before, a person who is three times near bankruptcy is gambling the entire US economy with him.
It is not that the US stocks are no longer a good investment, but with so much newly printed money, the world demands a hedge. There is enough capital in the market to push up any asset that has a story to tell, be it AI, 5G, vaccine, bitcoin, or gold, every stone is uncovered.
Our job as an investor today is no longer to discover undervalued companies but to trace where the money is flowing to and withdrawing from, and watch our backs. In the past, I argue that with ultra-low interest rates, bonds are no longer a good hedge for stocks. On contrary to the common belief, good quality growth companies are safer.
“The stock market is filled with individuals who know the price of everything, but the value of nothing.” – Phillip Fisher
Our strategy of “crossing the river by feeling the stones” has worked well since the pandemic.
There are a few things that we have done correctly so far.
- Investing outside Singapore: Singapore has one of the slowest economic recoveries.
- Tilting the portfolio to the technology and healthcare sector: both sectors have done well.
- Betting on Commodity price increase: adding 15% commodity exposure as I believe Dollar will start to debase.
The investment world has become increasingly numb to the COVID-10 numbers and relies strongly on the policy response. I believe the much-talked-about second dip of the stock market may not materialize, but it also means that any misstep of the policymakers from the US or China will create another round of volatility.
Talking about geopolitical risks, we need to note that the US election is coming in less than three months. Both Republication and Democrats understand that they need to play the “blaming China card” well. As expected, Donald Trump has started doing some extreme things like threaten to delist company companies, forcing their allies to ban Huawei, ban Tiktok, and Wechat. We can expect a more “dangerous” move in the near term. One obvious one is the military intervention in the Taiwan straits and any other non-conventional card that Trump wants to play.
But we can navigate through this as long as we stick with our belief: “trend is our friend”.
This article is a summary of my latest investment ideas for this month. If you are interested in finding out more about how I work with my clients to manage their investment portfolios, submit your request using the form below.
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