The most important thing to realise is that our overarching aim with this portfolio is to keep our money safe, while compounding long term above the risk free rate.
What matters most to us is the volatility of our returns. We aim to keep it as low as possible. To do that we attempt to increase risk only when macro conditions are propitious and at all other times we want to remain balanced between the various asset classes, running modest risk. How do we attempt to achieve that? By making minor tactical changes to the portfolio as appropriate and only increasing risk when macro conditions change. Below is a summary of how we increased or decreased risk in various asset classes during 2023, from inception of our portfolio.
Equities
Above are the timings of our additions and decreases to equities. The explanations as to why
we chose to minimize or strongly increase them at the indicated times can be found in the
relevant videos in July/August 2023 and then October/November 2023, published on our free
YouTube page.
Bonds
Because of our macro views we managed to avoid the carnage in long duration bonds and
timed entering into them only at appropriate times, while maintaining a balanced approach to
duration via high yielding US$ denominated foreign bonds. Once again, the precise reasoning
for the tactical and strategic changes can be found in the YouTube videos from the relevant
dates indicated by the arrows.
Intra/Asset Class Changes
When conditions make macro-economic sense, we also change allocations in a straight line
from one asset class to another. Once such example from 2023 was our decision to switch from
gold to an interest bearing asset, in this case TIPs, because we felt that real rates were at a
peak. If real rates are at a peak, the relative performance of an asset like TIPs Vs Gold might
not change dramatically, but the adjusted performance over time will, because of dividends
accrued.
To view our discussions and recommendation for this switch, once again please view the
relevant videos from October 2023.
The takeaway from the above should be that, using an analogy, what is important is not the
speed we drive the car at, rather when and why we choose to brake or accelerate and why.
By making the relevant changes to and between asset classes we achieved the following
returns in our real money account, growing the account in a steady and predictable manner with
extremely low volatility.
