10-year equity unit trust review feedback #1: “You can’t do that”

Got quite a bit of feedback on my last post and the conversation continues. I sincerely hope the comments keep coming as I believe this will help us ordinary folk understand better how investing works. I will address the feedback in a series of posts.

But first, how do you play the following games?

1. Grow the tallest tree in the world. Take up to 40-50 years if that’s what it takes but the following excuse isn’t allowed: my tree wasn’t the tallest because the climate conditions where I lived weren’t right.

2. Spend the least money on a car and make it last the longest among your friends. The idea is to use the car to get from point A to point B for as long as you can. It doesn’t need to be fancy but the following excuses aren’t allowed:

  • I didn’t achieve lowest spender because the car was dirt cheap but maintenance was a killer.
  • My car didn’t last the longest because I bought an expensive Volvo which lasts long but I spent too much, went bankrupt and lost the car.
  • My car didn’t last because I bought Malaysian.

In a nutshell, the most basic strategy to win the aforementioned games (or any game for that matter) is to not do anything that will screw up your winning chances.

How does this translate to the investing game? I think it’s: get the most returns for the risk you’re willing to take.

So, back to feedback #1.

“You can’t do that”

That is, you can’t compare Malaysia-focused funds to foreign markets.  And why not?

There are, in fact, whole professions dedicated to sussing out or documenting the world’s best and worst assets. These are fund managers and research analysts involved in what’s called the global asset allocation. They set their sights on not just the world’s best-performing stock markets but also on asset classes: stocks, bonds, rented property, commodities, currencies, pork belly, orange juice…you name it.

jpm global aa.png
An example of a global asset allocator playing to win (whether they do or not, is another matter). Some of the interesting themes put forward include: maturing US cycle, emerging market cycle turning up, US small cap expensive vs US large cap but will benefit from any tax cuts etc Source: JP Morgan

Hedge fund managers also search for the holy grail of highest returns and lowest risks from the universe of assets. Their mandate can be summarised as: the world is your oyster, do whatever it takes.

I think individual Malaysians have as much right as anybody to think of their own version of a global asset allocation. So when someone says something like Malaysia isn’t as lucky as other countries (and it’s true, it hadn’t been in a way), why limit yourself? Why not take your money to areas where the luck factor is likely to be higher?

I recognise that hindsight is 20/20 but I’m really asking how our portfolios can be stacked to get the greatest mileage from any growth and innovation that may come our way over our lifetimes.

I’m asking whether expensive, underperforming fund managers are the only way.

Next: Feedback #2 Forex Whodunit

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