TOP WIKIFOLIO TRADE
Hello Everyone, today, I would like to write about two topics. Firstly, I would like to try and identify a few long-term market aspects. Secondly, I would like to further detail why I chose the particular composition of asset classes for my permanent wikifolios that I currently use. One of the most important fascinations of spending time with financial markets is that they try to look into the future. For me, this is the „journalistic“ component of analysis alongside the accounting portion of work needed to set up and maintain a portfolio. Once you allow for that, megatrends tend to crop up everywhere. Some of them might have legs, the invention of others, however, might be motivated by mere marketing considerations. I already mentioned elsewhere that I see only two „true“ megatrends: Science Fiction and the Middle Ages. In my view, advanced technology as well as oldfashioned stuff like real estate, precious metals and agriculture are the places where I want to put my money. COVID-19 is an external occurence, the likes of which will happen repeatedly over time. It simply can´t be planned for, at least not with a reasonable approach to how much (derivative) portfolio protection will cost. But there are two negative developments, which are clearly visible on the horizon and which, in my perception, are still not adequately factored in within most portfolio allocations. These are climate change and the conglomerate of problems arising from debt excesses and money debasement. The first, at least to some extent, can be tackled by the Science Fiction megatrend, the second, by the Middle Ages megatrend mentioned above. The best way to realise this approach would be to build a portfolio of carefully selected single positions. An easier approach, however, would be using managed funds and/or etfs. There are, of course, technology and/or climate/ecological oriented funds available. But for several reasons, I´m not a huge fan of those. Maybe time will enlargen the array of possibilities offered and strengthen quality aspects. For the time being, I stick to broader etfs in my permanent portfolio variants. I chose the specific composition of stocks – bonds – precious metals, with all three being allotted equal portions of the portfolio, because I felt that this is the „natural“ definition of asset classes. Most permanent portfolios work with more than three asset classes and allot differing portions. Here, it seems to be a similar situation as with megatrends, as mentioned earlier. Again, I want to take several steps back and try for a very abstract view to address this question. For me, the starting point is money. What can you do with money ? You can hoard it, you can spend it and you can lend it. So, here we already have our asset class definitions and also, I think, the reason why no single asset class should be superior or inferior to another but all should be equal, in good and bad times. Basically, it should be unimportant whether you hoard, spend or lend. All three are legitimate ways to use money. As long as they manage to capture, preserve, and – ideally – grow value. In order to be prepared for an uncertain future, a combination of all three seems useful. Speaking of times, some permanent portfolio suggestions derive their asset class definition from economic conditions. The classic Harry Browne portfolio, for example, retains a cash position for recessions. Considering that cash translates into short-term bonds or moneymarket investments, I´m not at all happy about allotting 50% of the portfolio to one of three asset classes, if you count cash as bonds and add the long-term bond position. Also, as scarce as true crashes are, the same is true of economic situations which are not a combination of two characterisations. For example, growth might at some point be accompanied by inflation and also the jury still seems to be out on the question where excactly the deviding line between recession and depression is. You see, at least for the moment, my simple money-based definition for asset classes seems to offer more clarity, which might be a rather subjective view naturally. The money-based asset classes (as differing from condition-based) would then translate as follows: you spend money by buying stocks, you hoard money by transferring it into gold (& silver) and you lend money through bonds (of mixed durations). And you do all this at the same time with equal allotments. Of course, there remain quite a number of questions. Could you put some of the gold or bond portion into cryptocurrencies instead ? Is real estate a separate asset class ? Should you include various „alternative“ products like volatility, arbitrage, commodities or even short positions ? If so, how ? These questions might be food for a later sequel. Have a great Easter weekend, even if times are rough. Best wishes M.
Es gibt 2 Megatrends. Mittelalter & Science-Fiction.