November 15, 2006 – This blog is a continuation of my previous entry. I was going to wait uintil next week to post it, but was in a writing mood today so since I finished writing it earlier, here it is. From March 2005 to March 2006, I achieved a 40% return in my portfolio with 100% long positions. This year, from March to mid-September, I was up 35%. And if you’ve been following my newsletters and blogs, you’ll see that for the past six months, my calls on the price of gold have been more accurate than the Chief Global Economists of most major global investment houses (though the verdict is still out about my most recent call a week ago about gold not having reached its bottom yet). And these guys get paid millions of dollars a year to make their calls although I’ve been providing my calls for free. How have I been able to do this?
Although I would like to claim that it’s because I’m extraordinarily smart, there’s actually a much simpler explanation. I’ve simply chosen to be the master of just a few asset classes instead of an average student of many. Realistically, you only need to own four or five different asset classes to be diversified enough to protect your portfolio while being concentrated enough to significantly benefit from the areas you’ve chosen to master. Owning assets in transportation, technology, pharmaceuticals, retail, consumer, biotech, commodities, manufacturing, and agriculture is just plain silly. You’ll never build wealth this way. This approach hasn’t worked for the last hundred years and it won’t work for the next hundred. It’s a great asset gathering tool for investment firms but as a wealth building tool it’s not worth much. You want to find that delicate balance between being diversified enough to provide you ample protection while being concentrated enough to allow you to reap the rewards of your correct calls.
Kaeho’s Corner
Yes, I’m back this week. J.S. Good to see that you are finally learning the applicability of the martial arts to the art of investing. I’ve been telling you now for months that there is so much the average investor can learn from the principles of martial arts that will benefit their investment decisions. Although all the rage in martial arts is mixed martial arts (MMA), the mastery of a few techniques still rules here.
All you need to master is three techniques standing up and three ground fighting submission techniques and that is more than enough to win every fight. In fact, the Shaolin monk that has been perfecting his iron palm every day for the last ten years, with his one perfect technique, would probably still win every fight against an MMA practitioner because all he needs is to land one strike to kill you. In martial arts, less is more. In investing less is more.
Yet so many people are fooled by the lifestyle of excess and gluttony that plagues investment firms. The average salary for the more than 22,000 Goldman Sachs employees is more than USD $500,000. Yes that is not a typo. The average salary for all 22,000 employees, not the average salary of its executives, is USD $500,000. That’s why so many people desire to work for Goldman Sachs, and to tell you the truth, at those salaries, nobody could ever blame them.
However, the courtside New York Knick tickets that you receive, the receptions at the Four Seasons hotel, and the 7-series BMWs, and the Armani suits — what does all of this really have to do with your stock portfolio performance? Absolutely nothing. In contemporary terms, it’s the modern day version of the films the Prestige or the Illusionist. If you really want to build wealth in your portfolio, ensure that your portfolio is the master of just a few asset classes, not the fool of many.
Maholo,
Kaeho
On Tap for Friday’s Blog: What if Buddha Invested?
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J.S. Kim is the founder and Managing Director of maalamalama, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.
