Making your portfolio resilient for long-term wealth generation

By Rajesh Saluja

Investing is simple, but not easy. This quote by Warren Buffet has never been proven more apt for investors than during the last three years of turbulent markets. During this period, investors’ sentiment pendulum oscillated vigorously between greed and fear. From utter shocks and disbelief of lows formed during Covid to quick and steep recovery post the pandemic supplemented by euphoric IPO markets and crazy private companies and technology startup valuations

Like Churchill has said – “Never let a good crisis go to waste”, let’s look back at these three years and review investment decisions and themes that have worked well and those which fell short to meet expected objectives. Hopefully, the lessons learnt will help us in making our portfolios much more resilient for long-term wealth creation.

1. Asset Allocation. Asset Allocation. Asset Allocation: Any attempt to significantly reduce the equity allocation or raise cash during the pandemic would have been a double whammy, as one would have not only missed the quick and sudden recovery in the second half of 2020 but would have also found it extremely difficult to get back in markets as things till mid-2021 continued to look uncertain.

The surge in equity markets amidst daily rising fatalities and the emergence of newer variants made dis-believing investors sitting on cash lose out big time in one of the fastest run up in equity markets in recent times

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2. Euphoria around themes like technology businesses and startup investing: Second half of 2021 was equally difficult for many investors to stay out of tech IPOs or startup investing owing to never-ending news from India and the US about billions being poured into current and future Unicorns & Decacorns. Reports on valuations multiplying many folds every few months and global giants – both corporates and VCs – queuing up to invest in these names increased the risk appetite to such an extent that investors started believing in their Midas touch and exploring direct investing in startups. Many platforms and consortiums emerged to satiate this need and private broker networks flourished. This was all done with limited experience and understanding of risks, illiquidity, and management issues.

As this euphoria subsided in 2022, a key lesson was once again revised and learnt – Money making needs patience. If one does not have expertise himself, entrust the professional fund manager with a track record and let them do the job for you.

3. Over the last few years, a couple of other key and important aspects, considered, introduced, and implemented in portfolios to provide resilience over long terms have been around increasing awareness and coverage for Health Insurance, Global Diversification, and the use of ETFs/passive funds.

Adequate Health and Life insurance not only protects the portfolio from sudden outflows and falls during emergencies, but it also saves the risk of being forced to liquidate at the least opportune time.

Like insurance protects the fall in portfolio values from unplanned outflows and emergencies, global diversification protects from local currency depreciation. Add to that the benefit of investing in geographies and businesses complementing those available in India makes a compelling case for global diversification

A close look at cost, fees and expense optimization/rationalization in tough times is another way to make asmall incremental positive impact in portfolios. ETFs/Passive funds as a substitute to some MFs and mangers is a key enabler to this.

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4. SIPs serve two very important objectives– inculcate disciplined savings & investing and cost averaging to avoid single entry point risk. Corrections during SIP phase are meant to provide a lower entry point and improve averages – however, any investor who stops SIPs with the fear of further corrections will miss the key benefit of accumulating more units at a lower valuation

Lastly, a lesson which is timeless and always relevant – accept mistakes and shortcomings, analyze reasons for being lured into taking wrong decisions in the past, take steps to correct them and avoid repeating them. There is no better time than now to act on this point. Check direct equity holdings – don’t be emotionally attached to stocks which are drastically lower than buying price, analyze the future potential and not anchor oneself to entry price, shares accumulated on tips, over-concentration or diversification, themes which looked too promising and fancy to miss, investment thesis which sounds too complicated to decipher and trades which gives FOMO (fear of missing out) all these actions and decisions needs to be reviewed and acted upon NOW. If needed, take the help of a professional advisor to bring the house to order – at least with the above, one will enter the next crisis better prepared and positioned.

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(The author is CEO & Managing Director, ASK Private Wealth. The views and opinions expressed in this article are personal. Recipient(s) before acting on any information herein should make their own investigation and seek appropriate advice)