There is nothing called a ‘Buy and Hold’. Repeat. There is nothing called a Buy and Hold in portfolio management.
Whether it is a Warren Buffet, Peter Lynch, Vallabh Bhansali, Chetan Parikh, …..what sounds like B and H is actually active management. They buy shares and then follow the company through out its journey. In my own portfolio I have held Hero Honda (now Hero Motors) since 1985. Is it a b and H share? No. One has to actively see the quarterly and annual results, checking promise vs performance. Checking the results to see how much is luck and how much is skill.
It is not easy…so here is a small summary telling you what is Active Management…:
a) AM should aim at a decent positive return every year: there is no fund manager worth his salt who says ‘I have beaten the benchmark’ – that is what fund managers of a Mutual fund say, not the real value seeking client.
b) You should seamlessly shift between asset classes: For the real rich (net worth US $ 2 million, apart from primary and in use residence?) getting an asset manager who will sensibly move between asset classes is a must.
c) when you see your list of assets in which you have invested, if all are POSITIVE it clearly means you are not well hedged.
d) being in a full equity (well diversified) portfolio was an excellent strategy till 2007-8 perhaps, but going forward you will need a greater asset diversification. This may include US and European equities, real assets, Africa – so you need a honest manager with good knowledge. Or a manager who knows which ETF represents what.
e) Withdrawing (draw down) from asset classes during their bad times is TERRIBLE asset allocation. So if an asset class goes through a 14 year cycle you should have enough liquidity in other assets and be willing for the tide to change. These are very difficult calls for the manager and the owner, but will HAVE to be done, or the asset class avoided.
f) Diversification should work for all geographies, currencies, and economic cycles. Brilliant in theory, not sure how well it can be implemented. Your fund manager has to be well educated, trained and have the modesty to say “I do not understand how this works, let us ask …..”
g) Your portfolio should look good at a time when nobody wants to even look at their own portfolio because it is bleeding! In a bull market everybody makes money, in a bear market looking good is the skill. Being alive could be the prize!
h) Individual stock bets in markets you understand stocks and for the others, ETF. ETF dramatically reduces risk of getting into an Enron or a Satyam. In an era of competition and shorter CEO tenures ETF is better than….but that is your call.
i) Do not get carried away by the media. And for heavens sake take a long term view. In a life long portfolio 10, 15 years is not Long Term….40 years could be!!
j) For heavens sake, Active Management is NOT TRADING. So not making a move could be strategically a correct move.
more..when I feel like writing more!
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