When "fool" money recognizes its limitations, it is no longer a fool – Warren Buffett
Investment gurus believe that diversifying investments will not create profits that exceed the average. Diversification may diversify the overall risk of some positions, but it is difficult to outperform the market.
For ordinary investors, diversification seems to be "at ease", but in fact, it is better to study how to concentrate and where the risk of concentration is. A bad combination will not bring about a dispersed effect at all, but will be a "self-deception" of dispersed risk comfort.
Of course, everyone's investment goals are different, and perhaps as long as they outperform inflation mediocrely.
There is a kind of decentralization that can preserve the principal and "try" to outperform the market. His developer is Harry Brown, which is tentatively called a "permanent portfolio strategy."
Brown believes that the future price of any investment is random and unpredictable. However, the cycle of monetary policy can be roughly sorted out, for example, when the currency goes to easing, the inflation probability will also rise, then gold, Bitcoin and other commodities, heterogeneous assets will rise; but when the economy rises, interest rates gradually rise, inflation rates fall, bond prices rise, gold, stocks will be in an unfavorable environment.
Brown proposes a combination of four targets to form a "permanent portfolio strategy", which is expected to achieve complementarity in any one environment and achieve the effect of crossing the cycle.
Stock allocation: a high probability of profit when monetary easing and interest rates are lower;
Gold allocation: also profitable in the inflation cycle; (same with Bitcoin)
Bond allocation: appreciation when interest rates fall;
Cash retention: Cash is the stabilizer of all types of assets and reflects purchasing power in times of deflation.
We allocate according to the average proportion, that is, stocks, gold, bonds, cash account for a quarter each, so that the advantage is to achieve complementarity in the various monetary environments and economic cycles, and this is the long-term outperformance of inflation and close to the market average.
But there is a problem in subdividing down, such as stock selection, what kind of stock to choose, which is the key. Brown suggests choosing liquid blue-chip companies, or equity funds; for bonds, Brown recommends choosing long-term bonds such as 30-year bonds, close to zero-coupon bonds, which are more responsive to interest rates than near-duration bonds; gold or bitcoin is allocated according to five or five, or gold can be directly allocated. In terms of cash, at present, there is still interest in China, and there is basically no interest in foreign countries (cash retention is considered for the safety of the overall portfolio and does not require income).
These four assets need to be adjusted once a year, and when the asset is 25% higher than the overall portfolio, it needs to be lowered; conversely, the proportion of such assets needs to be increased. For example, stocks have risen a lot, resulting in a significant increase in the proportion of stocks in the portfolio, and at this time, we need to pay attention to reducing the stock assets to 25% of the initial proportion.
After we allocate the proportion of assets, we must maintain long-term holding, and we cannot arbitrarily change or short-term trading. Because once the transaction requires costs, in low-yield assets, a little difference in profits will affect the overall return in the long run.
Brown did a statistic on the "permanent portfolio strategy", from 1970 to 2002, the annual return of the portfolio reached 9.04%, and the annual increase of the S&P 500 index was 10.7% in the same period. Obviously, the "permanent strategy portfolio" outperformed the S&P, but you can see, how many fund managers or investors have been able to outperform the index in the past three decades? Not much really. This is also a period of time that Buffett recommended that you buy index funds.
And for the volatility of the stock market and the changes in the market, whether it is a hedge fund or an index ETF fund, it will experience bulls and bears, resulting in mood swings, moods and sorrows, fear, greed, hope and other emotions. If you choose the above strategy, you can sit back and work with peace of mind.
Harry Brown's "Perpetual Portfolio Strategy" is a well-designed investment system that uses clever diversification to preserve and increase the value of assets and achieve long-term yields close to the index.
Of course, for those who have a high-risk preference or want to become an investment guru (Buffett or Soros), the benefits of this strategy are not worth mentioning, but the premise is that you have to pay a lot, and no one is casually successful.
I want to think of the "permanent strategy portfolio" as a "lazy combination", spend a little time every year to allocate the assets in the portfolio, and then look at it next year to compare the effects of the market or other combinations.
Since this is a portfolio strategy for the European and American markets, we may need more domestic investors to create a Chinese version of the "permanent portfolio strategy". You can think in this direction, practice, and see if you can inspire.