Two years ago today, I had launched The Bedokian Portfolio ebook and blog. A lot of things happened between then and now in the financial markets, to name a few: the bull run of 2017, the trade war, the introduction of local REITs ETFs, disruptive technology, etc.
Despite these good and bad things happened around us, as investors we have to keep the course and stay invested, but we have to stay invested smartly against an unknown future. Here are some smart tips for you.
Smart Tip #1: Stay Diversified
Diversification is one of the key underlying principles of The Bedokian Portfolio. It is the simplest form of hedging against most types of investment risks and scenarios. From asset class types to different companies, diversification must be practiced along the entire spectrum.
While I understand there are some disagreements to diversification, with reasons such as potential missing out on huge returns and it is meant for the clueless, I find it is OK not to diversify, if you know what you are doing. If concentrating on some financial securities or only on one company, one must have the absolute conviction and foresight to do so, which unfortunately most of us do not have. The question is, even with confidence and almost complete information, what if one is wrong?
In the weeks leading to the 2016 United States presidential elections, a lot of analysts had predicted a Trump win would tank the markets; however the reverse happened and it started a bull run of 2017. Imagine what would happen if you had selected a bear market scenario and placed almost or all of your capital during that time?
With diversification, you may win some or lose some, but at least you don’t lose all.
Smart Tip #2: Stay Analysed
It would be foolhardy to go into any investment without first knowing what it is about. This is why I had included a chapter on fundamental analysis (FA), which is another key principle, in The Bedokian Portfolio.
If you have noticed by now, the Bedokian Portfolio caters to value, growth and a little bit of both. From my ebook and blog posts, I advocated getting company equities and REITs cheap (value), and I also provided some insights on looking out for the next big thing (growth; for more info read here).
You can use a myriad of FA techniques out there, or you could use the tiered Company-Environmental Factors-Economic Conditions model in the ebook. With FA, it is at least better to have a gauge and basis, which I called it “guesstimate”, rather than having nothing at all.
For passive Bedokian Portfolio investors who go the ETF way, it is advisable to do some basic analysis on the ETFs as to their structure and holdings, and see if any particular ETF is suited for your investment style and objectives.
Smart Tip #3: Stay Rational
We have rational investors and traders, but we also have irrational ones as well. Together, they form the participants of the financial markets. Irrationality stems from emotions taking over logic in the decision making process, and if there is enough irrationality it would move the markets in one direction or another.
Euphoria and panic are the two most common emotions displayed in the financial markets; the former would bring the markets up to a high, and the latter would bring it down to a low. Along the way, they bring collateral damage to your portfolio, at least on paper.
If you are a passive Bedokian Portfolio investor, that’s good. Just stick to your rebalancing plan and continue to enjoy life.
For the active ones, there are two ways to deal with market irrationality. First would be to ignore it, once you know the highs and lows are not results of real fundamental reasons. Second would be to capitalise on it; you could start doing a rebalance by selling the extreme winners and buying up the false losers in an up market (read up here) or treat it as a sale in a down market (read up here).
Emotional control is key to be a rational investor. Next time when the markets go awry, take a step back, calm down and think of the next logical step to do.
Well, that’s all I have to say in my second anniversary post. May all of us live long and prosper!