To Diversify or Not ? Investing Strategy by Zico

I love big words. But I have a problem remembering them.

What Aggregate Asset Allocation ? What Risk Parity Portfolios ?

My brain goes into a whirl and of course, the first reaction is to nod condescendingly because you do not want to look dumb especially if you want to claim to be a bloody director in a bank.

The funniest one I got years back from a junior trader, who happens to be very senior today and will not have anything to do with me, was him asking me about “bullet” bonds. Coincidentally, it was a UOB sub debt that we were talking about, and if I recall right, the UOB 4.95 2001 callable in 2006 issue.

First time bullet, I nodded. Second time bullet, I went hmmm. Third bullet, I had to ask (because he was junior and I was way too friendly) him what he meant ?

Oh. Bullet means plain vanilla bond i.e. straight bond without calls. It was the kid’s idea of jargon.

So Zico was on a rant about diversification for the sake of diversification which defeats the purpose of diversification in this article he read about Aggregated Allocation by some fund managers who managed to short list 100 undervalued stocks !

100 undervalued stocks ? Yes. “So buy all of them !”, I said.

Zico “tut-tut”-ed me and I saw some light in it.

How do you manage to buy 100 different stocks ? 1 lot each ? It is like trying to spray your bullets in all directions.

That is the sad state of investment in our ETF world. Spray and call it a HEDGED. A word that is familiar and dear to us after so many disappointments and managed funds are so good at pulling at our heartstrings, promising us that our money will be safe because they are experts at spraying.

My answer ? Then why don’t I just do it myself ? Do you need to be a certified marksman to operate the machine gun in the army ?

Zico reckons we each should have just about half dozen stocks (not 100 !) per portfolio. In our USD portfolio, our EM portfolio etc. Be mindful this is not a speculative strategy. (hearing stock punters will be raking it in on this O*#?-company in Singapore soon – same source as RambaR)

Go for the growth stories and companies with the footholds like he bought Netflix last year after doing in depth research. Yes. You can have 100 small winners or just one big winner.

His strategy is for legitimate and ethical investors. As I write, I am hearing stuff from the grapevine ie friend of friend of friend asking if anyone wants a 30-50% return for a quick money transfer (min. few million) to HK for a few months. Money back guarantee. And other get rich schemes to buy assets in foreigners’ names which I do not really want to hear about and will not remember anyway.