Money Brought Me Back

Preamble

Really been some time. With facebook dominating my online life and my dearest girlfriend sustaining my offline life, the value of blogging dropped to almost zero. Of course, the insane semester with 6 modules and exchange application didn’t help. Nor did the emergence of an online competitor looking to upseat this blog’s remaining value proposition of being an online repository of photos of my future travels: deviantart.com.

Purpose

The purpose today would be for me to document my 5-year investment strategy. This so-called strategy is obviously still in progress: my first ever trade took place a mere 2 months back with a purchase of AIG (NYSE:AIG, Current: $2.10, Bought $2.70). The trade was done without proper due diligence, based on gut instinct and was more of a opportunistic lurch than anything else. More on my plans for AIG later. The purpose of this blog entry is simply this: it represents an investment of time (3am now, supposed to be in bed 2 hours ago.) that will hopefully yield an incredibly large amount of amusement in the future. 

I don’t know about other investors out there, but I believe a person’s investment portfolio represents his personality and views of the world. I shall now flesh out my current tendancies and my position picks will naturally follow.

Portfolio

1. There’s a streak of juvenile rebellion in me. This led me to make a, on hindsight, bet (as opposed to investment) that AIG will prove ALL its naysayers wrong. It was of course rather juvenile. Thus from my current position on AIG of around 30%, I will be seeking to pare my exposure down to around 10% should any opportunities present itself in the form of bear market rallies (eg. ’surprise’ from the G20 conference, Obama’s policy moves etc.) in the coming months.

2. I believe within the five-year horizon, the massive spending/bailouts/reflationary measures will have a larger-than-life impact on world, and especially US, interest rates as Fed + central banks seek to clamp down on inflation during the global market recovery phase. Looking at the Fed interest rate at 1.00% now, and 30-year yields hovering around 3-4%, I am very pessimistic about Treasury bonds. Thus I intend to purchase a 10% exposure to ProShares UltraShort Lehman 20+Year Treasury (AMEX:TBT, Current: $60.72), which is essentially an inverse bond ETF. What happens is, should interest rates really rise in the future, bond prices will go down and the price of this share will go double-up as its an ULTRAshort (It seeks to replicate approximately twice the bond price fluctuations, in the opposite direction). I intend to hold it until the Fed rate hits a certain target (8%? not sure, gota research on this), then sell it and immediately invest in cheap bonds to balance up my equity-heavy portfolio.

3. I am deeply sold on Buffett’s idea to invest in companies with moats ie. competitive advantages that are not easily replicable. By Fool recommendation, I came across Copart Inc (NASDAQ:CPRT, Current: $27.93, Bought: $28.49). A mid-cap company with an innovative idea: to move the traditional car-salvage business model online, and do online auctions to fetch better prices. It’s moat comes from its web interface and the fact that it has acquired several junkyards in US and UK, which competitors can’t duplicate easily as junkyards are limited by zoning limits. After doing very sketchy research I quickly bought some up near the end of Friday’s session (Friday is the correction day after a 550-point Dow zoom on Thurs) as it was trading within 3% of its 52-day low. Looking at it now, I need to do ALOT of research on the competitive landscape and whether the moat is as good as it sounds. Should everything still look good, I will maintain a 20% overall exposure to this stock with promising growth potential.

4. Personally, I am long China and should the opportunity present itself I would want some exposure to the property sector simply because since there is SO MUCH land, a developer with capable management and sound business strategy would literally be staring at endless growth. Xinyuan Real Estate (NYSE:XIN, Current: $2.38) looks really attractive, trading at a large discount to book value. Things I like about it are the management’s focus on second-tier cities like Hangzhou (which makes alot of sense to me), clear target market, and their asset-light strategy. Contract, develop, move on. Should further research not turn up even better China stocks, I will aim for a 10% share in my portfolio for this stock.

5. The last company looks almost unreal. Looking at how the management is running the business and their sources of income (dual income from underwriting policies and investment portfolio), you really would think you’re staring at Berkshire when it was still growing (not that its not growing now still). I would just like to say Markel Corp (NYSE:MKL, Current: $312.25) looks downright amazing to me. Reading the management’s letter for FY2007 made me check out the career prospects in the company! Their single-minded focus on creating shareholder value, emphasis on employee development, clear tangible metric for success (growth in book value), alignment of incentives to prevent agency problems (employees are EXPECTED to buy company stock. They don’t believe in options!), constant evaluation of business niches and flexibility in restructuring business lines to weed out underperforming ones, capable investment team to manage it’s float (cash generated from insurance premiums that are used to invest to earn returns).. my gosh. I really can go on and on. I’ll be putting my money where my mouth is: 50% of my portfolio will be dedicated to this amazing company.

Prospects

So that’s essentially my entire portfolio. Should the TBT-flip trick work, I will be looking at a roughly 10%-90% division in terms of bonds vs equity. And NONE of the companies offer dividends, they all retain full earnings. So this is essentially growth-to-the-max for me. Given my very limited investing knowledge, I still feel that such a strategy is suitable as for the upcoming 5 years I do not foresee any capital outflow requirements, my income does not need any dividend supplement, and my appetite for risk is rather high. Just look at how I loaded up toxic AIG.

The currency risk on this portfolio is also very high. I’ll be over-loaded with USD exposure. However, given broad  analysts’ bullish outlook on USD to date, I can suffer less tension on this point at least in the short-term. But definitely I need to figure out a way to mitigate this factor.

As my portfolio grows (hopefully), I would want to use the gains to diversify further and seek to include my other views as well: I’m watching a basket of Alternative Energy and BRIC ETFs, and eyeing sectors like entertainment and customer discretionary that will be battered down by recession.

Politeness

Thanks for reading!