Tuesday, March 06, 2007
Asset Allocation Review: Have you done lately?
I usually update my portfolio status (i.e. gain/loss/%/etc) after each Friday's close. I reckon it's probably done too frequently but in return I do get a feel on the 'beta' or sensitivity of my portfolio and more importantly, I need to monitor the gearing as I do borrow against my holding. But after yesterday's fall I also did an asset allocation review, which on the other hand was something rarely done but should've deserved more of my attention.
Although I'm not a believer in the efficient market theory, I do by experience come to appreciate the virtue of some diversification, based on what's called academically the efficient frontier (which suggests within certain parameters diversification can actually both increase return and reduce risk!), unless you have superb sense to correctly pick the 'hot' industry year after year, in which case you are already immensely rich and I hope you are doing the society some good now.
I had to update my positions again yesterday even it's a Monday because I saw myself really 'stretched' after the fall (during which I bought some too). It turned out my gearing wasn't too bad and could absorb further shock. For self-record this is what my asset allocation looked like at yesterday's close.
Industrials 24.4%
Container Shipping / Port 18.4%
Banking / Insurance 13.4%
China Property 12.9%
Resources 12.9%
Utilities 6.6%
Construction 4.8%
China Retail 2.7%
Others 3.9%
There's so many good stocks to buy, with every one of them holding an equally credible story and promises. Sometimes it's easy to get distracted and lose focus. In my case while I believed I had done enough since last year to trim down my small cap positions, I was surprised I still held a bundle of them, especially the industrials though they are my sentimental favorite having brought my first success in stocks. Now it's clear I'll have to drop an existing holding if I happen to find yet another bargain in this sector, or this may be a proof that they are not really bargains and there's something wrong in my selection process. I don't wanna become a nail-hitting hammer only!
Other categories look fine though I'd prefer more exposure to the China power and retail plays. And maybe holding more resources as a strategic hedge isn't a bad idea too. I'll probably add some should this correction go deeper since the prices still weren't attractive enough and I only have one or two rounds of ammo left, so I'll wait for my chance and if possible until the release of last years' results. But who knows if the market will simply take off from here and never come back? But a 6-day correction, if it's over, will be one of the shortest in recent memory, even it managed to create as much damage as the last correction in May 2006 which lasted 6 weeks! I think this is too far off today's topic.
Another useful thing I did during a review is to count the number of stocks. I usually hold about 20-25 at any one time (excluding those IPO allotments which are too small to matter). I've tried hard enough to keep it under 25 but my target is 15-20, which should suit my portfolio size and risk appetite well. Reducing the number of stocks in a portfolio can really stress on one's stockpicking ability. That's why if you read an annual report of a typical mutual fund you'll find hundreds of holdings but little return! This is in sharp contrast to Tony's portfolio in the Next Magazine which holds like more or less a dozen stocks but has delivered 25% annual return since 1999! I guess the morale is: you can't hold too many good stocks because there aren't that many good stocks around!
Although I'm not a believer in the efficient market theory, I do by experience come to appreciate the virtue of some diversification, based on what's called academically the efficient frontier (which suggests within certain parameters diversification can actually both increase return and reduce risk!), unless you have superb sense to correctly pick the 'hot' industry year after year, in which case you are already immensely rich and I hope you are doing the society some good now.
I had to update my positions again yesterday even it's a Monday because I saw myself really 'stretched' after the fall (during which I bought some too). It turned out my gearing wasn't too bad and could absorb further shock. For self-record this is what my asset allocation looked like at yesterday's close.
Industrials 24.4%
Container Shipping / Port 18.4%
Banking / Insurance 13.4%
China Property 12.9%
Resources 12.9%
Utilities 6.6%
Construction 4.8%
China Retail 2.7%
Others 3.9%
There's so many good stocks to buy, with every one of them holding an equally credible story and promises. Sometimes it's easy to get distracted and lose focus. In my case while I believed I had done enough since last year to trim down my small cap positions, I was surprised I still held a bundle of them, especially the industrials though they are my sentimental favorite having brought my first success in stocks. Now it's clear I'll have to drop an existing holding if I happen to find yet another bargain in this sector, or this may be a proof that they are not really bargains and there's something wrong in my selection process. I don't wanna become a nail-hitting hammer only!
Other categories look fine though I'd prefer more exposure to the China power and retail plays. And maybe holding more resources as a strategic hedge isn't a bad idea too. I'll probably add some should this correction go deeper since the prices still weren't attractive enough and I only have one or two rounds of ammo left, so I'll wait for my chance and if possible until the release of last years' results. But who knows if the market will simply take off from here and never come back? But a 6-day correction, if it's over, will be one of the shortest in recent memory, even it managed to create as much damage as the last correction in May 2006 which lasted 6 weeks! I think this is too far off today's topic.
Another useful thing I did during a review is to count the number of stocks. I usually hold about 20-25 at any one time (excluding those IPO allotments which are too small to matter). I've tried hard enough to keep it under 25 but my target is 15-20, which should suit my portfolio size and risk appetite well. Reducing the number of stocks in a portfolio can really stress on one's stockpicking ability. That's why if you read an annual report of a typical mutual fund you'll find hundreds of holdings but little return! This is in sharp contrast to Tony's portfolio in the Next Magazine which holds like more or less a dozen stocks but has delivered 25% annual return since 1999! I guess the morale is: you can't hold too many good stocks because there aren't that many good stocks around!
Subscribe to Posts [Atom]