Philosophy of Investing
Diversified Portfolio
I believe in investing in a diversified portfolio for my clients. It is the best way for clients to invest. My clients do what they are best at doing in their career, in the medical, legal and IT profession, etc. They invest only in what they can fully understand, with my assistance.
A diversified portfolio manages the risks while pursuing investment returns.
A moderate portfolio can have the expected returns of 6% to 7% while allowing my clients (and myself) to sleep well at night. Aggressive portfolios can reach potentials of above 20% with risks. Portfolios are uniquely designed according to individual client’s risk appetite, personal situations and purpose of investment. If possible, I will include uncorrelated assets in the portfolio, such as hedge funds, structured products and alternative funds.
| There are, in general, two other efficient ways of making money from financial assets. | |
| Focused Investment through Fundamental Analysis | This means selecting a number of securities through understanding the business of the companies, including analyzing the numbers. From the company, the industry, regulatory framework, competitors, expansion plans, etc. The rewards of focused investment can be tremendous, example Google in the last 5 years. However, the risks is also terrible, example Citigroup Inc in the last 5 years. This encompasses other investment paradigms like Value Investing, Contrarian Investing, Growth Investing and Quality Investing |
| Trading | Trading is totally different from investing and can involve many securities. Traders usually try to profit from short-term price volatility with trades lasting anywhere from several seconds to several weeks. Trading is about Technical Analysis, rigorous risk management and strategy. Trading IS like running a casino, you want to count the odd such that you always win. |
Common Practice Now
I have discovered that there are a large number of individuals using what I call a mindless trading-cum-investment-stock-selection method. Trading-cum-investment, as the process employs strategies of both trading long-term value investing, but achieves non of the advantages. Stock selection, as limited securities used are usually the companies the individual has seen advertisement or suddenly heard of. Such companies include the employer, household names or stock tips. Mindless, as the decision making process is not based on any concrete intelligence, nor knowledge, even worse without any data.
I believe this method is reasonable for a beginner who will be moving on to be a sophisticated investor. However, if the individual is still doing this after six months, it means either the individual does not mind losing money, or he is just plain foolish. In this case, the individual will be losing out a BIG deal on the risk/reward spectrum. This is why for a non-professional investor, a portfolio approach is the best.
